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on Economic Design |
| By: | De Groote, Olivier; Fabre, Anaïs; Luflade, Margaux; Maurel, Arnaud |
| Abstract: | The optimal functioning of centralized allocation systems is undermined by the pres-ence of institutions operating off-platform—a feature common to virtually all real-world implementations. These off-platform options generate justified envy, as students may reject their centralized assignment in favor of an outside offer, leaving vacant seats in programs that others would have preferred to their current match. We examine whether sequential assignment procedures can mitigate this inefficiency: they allow students to delay their enrollment decision to potentially receive a better offer later, at the cost of waiting before knowing their final admission outcome. To quantify this trade-off, we estimate a dynamic model of application and acceptance decisions using rich adminis-trative data from the French college admission system, which include rank-ordered lists and waiting decisions. We find that waiting costs are large. Yet, by improving students’ assignment outcomes relative to a standard single-round system, the sequential mecha-nism decreases the share of students who leave the higher education system without a degree by 5.4% and leads to large welfare gains. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130803 |
| By: | Zhicheng Du; Wei Tang; Zihe Wang; Shuo Zhang |
| Abstract: | In digital advertising, online platforms allocate ad impressions through real-time auctions, where advertisers typically rely on autobidding agents to optimize bids on their behalf. Unlike traditional auctions for physical goods, the value of an ad impression is uncertain and depends on the unknown click-through rate (CTR). While platforms can estimate CTRs more accurately using proprietary machine learning algorithms, these estimates/algorithms remain opaque to advertisers. This information asymmetry naturally raises the following questions: how can platforms disclose information in a way that is both credible and revenue-optimal? We address these questions through calibrated signaling, where each prior-free bidder receives a private signal that truthfully reflects the conditional expected CTR of the ad impression. Such signals are trustworthy and allow bidders to form unbiased value estimates, even without access to the platform's internal algorithms. We study the design of platform-optimal calibrated signaling in the context of second-price auction. Our first main result fully characterizes the structure of the optimal calibrated signaling, which can also be computed efficiently. We show that this signaling can extract the full surplus -- or even exceed it -- depending on a specific market condition. Our second main result is an FPTAS for computing an approximately optimal calibrated signaling that satisfies an IR condition. Our main technical contributions are: a reformulation of the platform's problem as a two-stage optimization problem that involves optimal transport subject to calibration feasibility constraints on the bidders' marginal bid distributions; and a novel correlation plan that constructs the optimal distribution over second-highest bids. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.17187 |
| By: | Vincent Meisner (HU Berlin); Pascal Pillath (HU Berlin) |
| Abstract: | We design profit-maximizing mechanisms to sell an excludable and non-rival good with positive and/or negative network effects. Buyers have heterogeneous private values that depend on how many others also consume the good. In optimum, an endogenous number of the highest types consume the good, and we can implement this allocation in dominant strategies. We apply our insights to digital content creation, and we are able to rationalize features seen in monetization schemes in this industry such as voluntary contributions, community subsidies, and exclusivity bids. |
| Keywords: | mechanism design; non-rival goods; club goods; network effects; digital content; creator economy; |
| JEL: | D82 |
| Date: | 2025–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:541 |
| By: | James Best; Daniel Quigley; Maryam Saeedi; Ali Shourideh |
| Abstract: | We examine receiver-optimal mechanisms for aggregating information that is divided across many biased senders. Each sender privately observes an unconditionally independent signal about an unknown state, so no sender can verify another's report. A receiver has a binary accept/reject decision which determines players' payoffs via the state. When information is divided across a small population and bias is low, the receiver-optimal mechanism coincides with the sender-preferred allocation, and can be implemented by letting senders \emph{confer} privately before reporting. However, for larger populations, we can benefit from the informational divide. We introduce a novel \emph{incentive-compatibility-in-the-large (ICL)} approach to solve the high-dimensional mechanism design problem for the large-population limit. We use this to show that optimal mechanisms converge to one that depends only on the accept payoff and punishes excessive consensus in the direction of the common bias. These surplus burning punishments imply payoffs are bounded away from the first-best level. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.17609 |
| By: | Ludwig Dierks (University of Illinois at Chicago); Nils Olberg (University of Zurich); Sven Seuken (University of Zurich); Vincent W. Slaugh (SC Johnson College of Business, Cornell University); M. Utku Ünver (Boston College) |
| Abstract: | To find families for the more than 100, 000 children in need of adoptive placements, most United States child welfare agencies have employed a family-driven search approach in which prospective families respond to announcements made by the agency. However, some agencies have switched to a caseworker-driven search approach in which the caseworker directly contacts families recommended for a child. We introduce a novel search-and-matching model that captures the key features of the adoption process and compare family-driven with caseworker-driven search in a game-theoretical framework. Under either approach, the equilibria are generated by threshold strategies and form a lattice structure. Our main theoretical finding then shows that no family-driven equilibrium can Pareto dominate any caseworker-driven outcome, whereas it is possible that each caseworker-driven equilibrium Pareto dominates every equilibrium attainable under family-driven search. We also find that when families are sufficiently impatient, caseworker-driven search is better for all children. We illustrate numerically that most agents are better off under caseworker-driven search for a wide range of parameters. Finally, we provide empirical evidence from an agency that switched to caseworker- driven search and achieved a three-year adoption probability that outperformed a statewide benchmark by 24%, as well as a statistically significant 27% improvement in adoption hazard rates. |
| Keywords: | child adoption, search and matching, market design, game theory |
| JEL: | D47 C78 D83 |
| Date: | 2025–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:boc:bocoec:1093 |
| By: | Peter Achim (University of York); Willy Lefez (HU Berlin) |
| Abstract: | We study a static bilateral trade setting with moral hazard, where a seller privately chooses quality and a buyer may pay to verify it. We show that buyer-side information acquisition can lead to informational hold-up through a mechanism wecall surplus squeezing: precise verification enables the seller to extract all buyer surplus, deterring inspection and causing trade to unravel. When verification is noisy, uncertainty preserves buyer surplus and sustains trade. Our framework highlights how strategic responses to learning can distort investment incentives, offering a new perspective on the limits of information precision in mitigating moral hazard. |
| Keywords: | surplus squeeze; informational hold-up; buyer learning; costly information; |
| JEL: | D82 D83 |
| Date: | 2025–07–22 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:538 |
| By: | Markus Dertwinkel-Kalt; Vincent Eulenberg; Christoph Feldhaus; Jonas Frey; Kevin Breuer; Ben Bruske; Flynn Fehre; Penelope Hoffmann; Cederik Höfs; Nico Klocke; Lucas Schnack; Florian Strunk; Moritz Thiele; Annika Walter; Julia Weinberg; Konstantin Zörner |
| Abstract: | In social dilemmas, cooperation failures often arise due to the absence of mechanisms that prevent free-riding and enhance cooperation. Given the critical role these mechanisms play in sustaining cooperation, why are they so frequently missing? To explore this, we conducted an online experiment testing whether individuals choose to implement such cooperation-inducing mechanisms and why they might refrain from doing so. Participants were introduced to the rules of two public goods games, one of which includes a cooperation-inducing mechanism, while the other does not. Regarding the likelihood of successful cooperation, we found that participants were overly optimistic in the absence of the mechanism and overly pessimistic in its presence. As a result, a majority of subjects preferred the game without the cooperation-inducing mechanism. However, when we corrected participants' beliefs about the actual payoffs obtained in the two games, a majority shifted their preference toward the game with the cooperation-inducing mechanisms in place. |
| Keywords: | free riding, equilibrium effects, misspecified beliefs, spectator design |
| JEL: | D90 D01 C91 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11999 |
| By: | Joaquín Coleff (CEFIP/CEDLAS); Juan Sebastián Ivars (Sciences Po) |
| Abstract: | We consider an organization with two projects which have productive spillovers. Three individuals are active in this organization: two agents, each specialized in one project, and the CEO, who is a generalist. The owner of the organization allocates authority over each project to these three individuals. This allocation determines the organizational design and aims to maximize profits subject to incentive constraints. The main constraints arise from non-contractible choices: in decision-making, to exploit the gains from spillovers, and in providing incentives to address moral hazard in effort. We show that the optimal organizational design can take one of the following forms: centralization, decentralization, hierarchical delegation, or cross-authority. Two forces drive the optimal organizational design: (i) the CEO’s productivity relative to the agents’ in exerting effort, and (ii) the value of spillovers relative to profits in the project over which an individual has authority. We illustrate the practical relevance of our model by analyzing the emergence of hierarchical delegation in Facebook’s major 2018 reorganization. |
| Keywords: | decision rights, authority, moral hazard, hierarchies, incentives |
| JEL: | C70 D23 L22 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:367 |