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on Economic Design |
| By: | Onuchic, Paula |
| Abstract: | An advisor discloses evidence about an object to a potential buyer, who doesn't know the object's value or the profitability of its sale (the advisor's motives). I characterize optimal disclosure rules that balance two goals: maximizing the overall probability of sale, and steering sales from lower- to higher-profitability objects. I consider the implications of a regulation that forces the advisor to always reveal her motives to the buyer. I show that whether such policies induce the advisor to disclose more evidence about the object's value hinges on the curvature of the buyer's demand for the object. This result refines our understanding of effective regulation of advisor-advisee communication with and without commitment. |
| JEL: | J1 |
| Date: | 2025–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129091 |
| By: | Yuhang Guo; Dong Hao; Bin Li; Mingyu Xiao; Bakh Khoussainov |
| Abstract: | Strategyproofness in network auctions requires that bidders not only report their valuations truthfully, but also do their best to invite neighbours from the social network. In contrast to canonical auctions, where the value-monotone allocation in Myerson's Lemma is a cornerstone, a general principle of allocation rules for strategyproof network auctions is still missing. We show that, due to the absence of such a principle, even extensions to multi-unit network auctions with single-unit demand present unexpected difficulties, and all pioneering researches fail to be strategyproof. For the first time in this field, we identify two categories of monotone allocation rules on networks: Invitation-Depressed Monotonicity (ID-MON) and Invitation-Promoted Monotonicity (IP-MON). They encompass all existing allocation rules of network auctions as specific instances. For any given ID-MON or IP-MON allocation rule, we characterize the existence and sufficient conditions for the strategyproof payment rules, and show that among all such payment rules, the revenue-maximizing one exists and is computationally feasible. With these results, the obstacle of combinatorial network auction with single-minded bidders is now resolved. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.14472 |
| By: | Anja Prummer; Francesco Nava |
| Abstract: | We study a principal who allocates a good to agents with private, independently distributed values through an optimal mechanism. The principal can strategically shape these value distributions by modifying the good’s features, which affect agents’ valuations. Our analysis reveals that optimal designs are frequently divisive—creating goods that appeal strongly to specific agents or agent types while being less valued by others. These divisive designs reduce information rents and increase total surplus, at the expense of competition. Even when total surplus is constrained, some divisiveness in designs remains optimal. |
| Keywords: | Value Design, Mechanism Design, Di!erentiation |
| JEL: | D82 D46 L15 |
| Date: | 2025–07–23 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0069 |
| By: | Sreedurga Gogulapati; Yadati Narahari; Souvik Roy; Soumyarup Sadhukhan |
| Abstract: | We study the classical assignment problem with initial endowments in a probabilistic framework. In this setting, each agent initially owns an object and has strict preferences over the entire set of objects, and the goal is to reassign objects in a way that satisfies desirable properties such as strategy-proofness, Pareto efficiency, and individual rationality. While the celebrated result by Ma (1994) shows that the Top Trading Cycles (TTC) rule is the unique deterministic rule satisfying these properties, similar positive results are scarce in the probabilistic domain. We extend Ma's result in the probabilistic setting, and as desirable properties, consider SD-efficiency, SD-individual rationality, and a weaker notion of SD-strategy-proofness -- SD-top-strategy-proofness -- which only requires agents to have no incentive to misreport if doing so increases the probability of receiving their top-ranked object. We show that under deterministic endowments, a probabilistic rule is SD-efficient, SD-individually rational, and SD-top-strategy-proof if and only if it coincides with the TTC rule. Our result highlights a positive possibility in the face of earlier impossibility results for fractional endowments (Athanassoglou and Sethuraman (2011)) and provides a first step toward reconciling desirable properties in probabilistic assignments with endowments. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.09550 |
| By: | Filip Tokarski |
| Abstract: | A welfare-maximizing designer allocates two kinds of goods using two wasteful screening instruments: ordeals, which enter agents' utilities additively, and damages, which harm agents in proportion to their values for the goods. If agents have common valuations for one of the goods, damages always lead to Pareto-dominated mechanisms: any allocation using damages can also be implemented with ordeals alone, while also leaving greater rents to inframarginal types. However, using damages can be optimal when agents' valuations for both goods are heterogeneous: with multidimensional types, the two devices differ in how they sort agents into available options, with the optimal sorting sometimes requiring the use of damages. I nevertheless identify distributional conditions under which using damages is not optimal. In those cases, the optimal mechanism produces an efficient allocation by posting "market-clearing" ordeals for each type of good. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.04456 |
| By: | Jugal Garg; Yixin Tao; L\'aszl\'o A. V\'egh |
| Abstract: | The Probabilistic Serial (PS) mechanism -- also known as the simultaneous eating algorithm -- is a canonical solution for the assignment problem under ordinal preferences. It guarantees envy-freeness and ordinal efficiency in the resulting random assignment. However, under cardinal preferences, its efficiency may degrade significantly: it is known that PS may yield allocations that are $\Omega(\ln{n})$-worse than Pareto optimal, but whether this bound is tight remained an open question. Our first result resolves this question by showing that the PS mechanism guarantees $(\ln(n)+2)$-approximate Pareto efficiency, even in the more general submodular setting introduced by Fujishige, Sano, and Zhan (ACM TEAC 2018). This is established by showing that, although the PS mechanism may incur a loss of up to $O(\sqrt{n})$ in utilitarian social welfare, it still achieves a $(\ln{n}+2)$-approximation to the maximum Nash welfare. In addition, we present a polynomial-time algorithm that computes an allocation which is envy-free and $e^{1/e}$-approximately Pareto-efficient, answering an open question posed by Tr\"obst and Vazirani (EC 2024). The PS mechanism also applies to the allocation of chores instead of goods. We prove that it guarantees an $n$-approximately Pareto-efficient allocation in this setting, and that this bound is asymptotically tight. This result provides the first known approximation guarantee for computing a fair and efficient allocation in the assignment problem with chores under cardinal preferences. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.03359 |
| By: | Olivier De Groote; Anaïs Fabre; Margaux Luflade; Arnaud Maurel |
| Abstract: | The optimal functioning of centralized allocation systems is undermined by the presence 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 administrative 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 mechanism decreases the share of students who leave the higher education system without a degree by 5.4% and leads to large welfare gains. |
| JEL: | C61 I0 I23 I3 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34105 |
| By: | Tom Demeulemeester; Bettina Klaus |
| Abstract: | We consider object allocation problems with capacities (see, e.g., Abdulkadiroglu and Sonmez, 1998; Basteck, 2025) where objects have to be assigned to agents. We show that if a lottery rule satisfies ex-post non-wastefulness and probabilistic (Maskin) monotonicity, then ex-post pairwise efficiency is equivalent to ex-post Pareto efficiency. This result allows for a strengthening of various existing characterization results, both for lottery rules and deterministic rules, by replacing (ex-post) Pareto efficiency with (ex-post) pairwise efficiency, e.g., for characterizations of the Random Serial Dictatorship rule (Basteck, 2025), Trading Cycles rules (Pycia and Unver, 2017), and Hierarchical Exchange rules (Papai, 2000). |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.05340 |
| By: | Yiling Chen; Tao Lin; Wei Tang; Jamie Tucker-Foltz |
| Abstract: | The optimal signaling schemes in information design (Bayesian persuasion) problems often involve non-explainable randomization or disconnected partitions of state space, which are too intricate to be audited or communicated. We propose explainable information design in the context of information design with a continuous state space, restricting the information designer to use $K$-partitional signaling schemes defined by deterministic and monotone partitions of the state space, where a unique signal is sent for all states in each part. We first prove that the price of explainability (PoE) -- the ratio between the performances of the optimal explainable signaling scheme and unrestricted signaling scheme -- is exactly $1/2$ in the worst case, meaning that partitional signaling schemes are never worse than arbitrary signaling schemes by a factor of 2. We then study the complexity of computing optimal explainable signaling schemes. We show that the exact optimization problem is NP-hard in general. But for Lipschitz utility functions, an $\varepsilon$-approximately optimal explainable signaling scheme can be computed in polynomial time. And for piecewise constant utility functions, we provide an efficient algorithm to find an explainable signaling scheme that provides a $1/2$ approximation to the optimal unrestricted signaling scheme, which matches the worst-case PoE bound. A technical tool we develop is a conversion from any optimal signaling scheme (which satisfies a bi-pooling property) to a partitional signaling scheme that achieves $1/2$ fraction of the expected utility of the former. We use this tool in the proofs of both our PoE result and algorithmic result. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.14196 |
| By: | Shitong Wang |
| Abstract: | This paper investigates the implementation and performance of a decentralized information transmission mechanism in complete information games. We propose a mediator-free mechanism that realizes mediator-free irrational correlated equilibria through a finite sequence of cheap talk. Designed for environments with at least five players, the mechanism leverages encryption techniques to safeguard private information and strategic choices. The core procedure involves three players decomposing and encrypting the equilibrium, while two other players securely randomize and deliver the encrypted recommendations to designated players. Our results demonstrate that all irrational correlated equilibria can be achieved through this mechanism, which is both strategically robust and practically implementable. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.01841 |
| By: | D. Carlos Akkar |
| Abstract: | I study the optimal voting mechanism for a committee that must decide whether to enact or block a policy of unknown benefit. Information can come both from committee members who can acquire it at cost, and a strategic lobbyist who wishes the policy to be enacted. I show that the dictatorship of the most-demanding member is a dominant voting mechanism: any other voting mechanism is (i) less likely to enact a good policy, (ii) more likely to enact a bad policy, and (iii) burdens each member with a greater cost of acquiring information. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.21699 |
| By: | Ricardo Alves Monteiro; Stelios Fourakis |
| Abstract: | In this paper, we build a model of sovereign borrowing and default, disciplined with proprietary bid level data, to study the impact that alternative ways of issuing sovereign debt have on borrowing decisions, the cost of debt, and welfare. We focus on the two most common types of auctions used for sovereign debt issuances: uniform and discriminatory price auctions. We calibrate the model to the Portuguese economy and find that the type of auction used has quantitative implications. In particular, discriminatory auctions generate spreads that provide a better fit to the data. In a counterfactual, we find that switching to a uniform protocol constitutes a Pareto improvement, and that the difference in welfare is highest during crises (0.6 percent of permanent consumption). Finally, we find that accounting for dynamic effects is crucial. In a single auction setting, a risk averse government prefers the discriminatory protocol. However, with repeated auctions, the properties of the discriminatory protocol incentivize over-borrowing. The anticipatory effect it has on prices makes the uniform protocol a better option. |
| Keywords: | Sovereign debt auctions; default risk; discretion; dilution |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/151 |
| By: | Kun Zhang |
| Abstract: | When introducing a novel product, a seller sets a price and decides how much information to provide to a buyer, who may incur a search cost to discover an outside option. The buyer knows the outside option distribution; the seller knows only its mean and bounds. Seeking "robustness, " the seller evaluates strategies based on guaranteed profits, balancing search deterrence against surplus extraction. Providing information can deter search and boost demand but requires offering the buyer a higher payoff via a lower price. Results help explain the variations in information provision among new products and suggest that lower search costs can raise prices and lead to noisier information, potentially harming consumers. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.04134 |