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on Economic Design |
| By: | Zhiming Feng; Qingmin Liu |
| Abstract: | This paper studies mechanism design environments in which the designer does not know the distribution of agents' private information a priori and instead learns from agents' behavior induced by the mechanism itself. We formalize a notion of self-confirming mechanisms and a refinement thereof, capturing the idea that an equilibrium mechanism is optimal given the designer's belief and that this belief is consistent with the information produced by the mechanism. We establish a fictitious revelation principle, showing that any incentive-compatible mechanism can be represented as a direct mechanism with filtered type reports that preserve the original mechanism's informational content. Applying the framework to a monopoly problem, we show that, subject to an equilibrium refinement, dominant-strategy self-confirming mechanisms are exactly posted-price mechanisms with locally revenue-maximizing prices. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.12532 |
| By: | Adam Hamdan |
| Abstract: | In priority-based matching, serial dictatorship (SD) is simple, strategyproof, and Pareto efficient, but not free of justified envy (i.e. fair). This paper studies how to fairly order agents in SD as a function of their priorities. I show that if preferences are identical across agents and uniformly distributed, and objects have unit capacities, the serial order that minimizes the expected number of justified envy cases is the Kemeny ranking of agents' priorities. If any of these assumptions -- identical preferences, uniformly distributed preferences, or unit capacities -- is relaxed, the optimal SD follows a weighted Kemeny ranking. Broadly, these results demonstrate how insights from social choice theory can inform the design of practical matching mechanisms. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.05660 |
| By: | Yingkai Li; Xiaoyun Qiu |
| Abstract: | We study how to allocate resources to participants who can strategically misrepresent their deservingness at a cost. A principal assigns item(s) (or money) among multiple agents on the basis of their costly signals. Each agent's signal reflects their private type in the absence of misrepresentation but can be inflated above their true type at a cost. The principal is a social planner who aims to maximize the weighted average of matching efficiency and a utilitarian objective. Strategic misrepresentation introduces novel incentive-compatibility constraints, under which we characterize the optimal mechanism. We apply our characterization to two kinds of markets, distinguished by resource scarcity, and show that the principal strictly benefits from randomizing the allocations based on costly signals when the population of participants is large enough. Interestingly, in large markets with scarce resources, the format of the optimal mechanism converges to a winner-takes-all contest; however, there is a non-diminishing value in randomizing allocations to middle types as the population of participants grows. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.04173 |
| By: | Marilyn Pease; Mark Whitmeyer |
| Abstract: | We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse than the outside option, and winning with a low bid is preferable to winning only with a high bid--greater risk aversion makes high bids more appealing. In second-price auctions with a known outside option, bidding more increases risk exposure conditional on winning, so greater risk aversion favors lower bids. We show these bid-level forces translate into corresponding equilibrium comparative statics. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.09683 |
| By: | Aleksei Adadurov; Sergey Barseghyan; Anton Chtepine; Antero Eloranta; Andrei Sebyakin; Arsenii Valitov |
| Abstract: | We study optimal auction design for Maximum Extractable Value (MEV) auction markets on Ethereum. Using a dataset of 2.2 million transactions across three major orderflow providers, we establish three empirical regularities: extracted values follow a log-normal distribution with extreme right-tail concentration, competition intensity varies substantially across MEV types, and the standard Revenue Equivalence Theorem breaks down due to affiliation among searchers' valuations. We model this affiliation through a Gaussian common factor, deriving equilibrium bidding strategies and expected revenues for five auction formats, first-price sealed-bid, second-price sealed-bid, English, Dutch, and all-pay, across a fine grid of bidder counts $n$ and affiliation parameters $\rho$. Our simulations confirm the Milgrom-Weber linkage principle: English and second-price sealed-bid auctions strictly dominate Dutch and first-price sealed-bid formats for any $\rho > 0$, with a linkage gap of 14-28\% at moderate affiliation ($\rho=0.5$) and up to 30\% for small bidder counts. Applied to observed bribe totals, this gap corresponds to \$10-18 million in foregone revenue over the sample period. We also document a novel non-monotonicity: at large $n$ and high $\rho$, revenue peaks in the interior of the affiliation parameter space and declines thereafter, as near-perfect correlation collapses the order-statistic spread that drives competitive payments. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.16333 |
| By: | Frank Yang (Department of Economics, Harvard University); Kai Hao Yang (School of Management, Yale University) |
| Abstract: | We study optimization problems in which a linear functional is maximized over probability measures that are dominated by a given measure according to an integral stochastic order in an arbitrary dimension. We show that the following four properties are equivalent for any such order: (i) the test function cone is closed under pointwise minimum, (ii) the value function is affine, (iii) the solution correspondence has a convex graph with decomposable extreme points, and (iv) every ordered pair of measures admits an order-preserving coupling. As corollaries, we derive the extreme and exposed point properties involving integral stochastic orders such as multidimensional mean-preserving spreads and stochastic dominance. Applying these results, we generalize Blackwell's theorem by completely characterizing the comparisons of experiments that admit two equivalent descriptions-through instrumental values and through information technologies. We also show that these results immediately yield new insights into information design, mechanism design, and decision theory. |
| Date: | 2026–03–12 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2506 |
| By: | d’Aspremont, Claude (Université catholique de Louvain, LIDAM/CORE, Belgium); Crémer, Jacques (Toulouse School of Economics) |
| Abstract: | The theory of Bayesian mechanism design is of interest to economists andcomputer scientists alike. It has focused on two extreme assumptions on the beliefs of the agents, full-freeness (or independence) and no-freeness (or Beliefs Determine Preferences). We discuss more general conditions that cover intermediate cases between these two extremes and characterize the corresponding set of implementable mechanisms. We also discuss applications of these results to economics and to computer science. |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2025002 |
| By: | Dirk Bergemann (Yale University); Alessandro Bonatti (MIT Sloan); Alex Smolin (Toulouse School of Economics) |
| Abstract: | We develop a framework for the optimal pricing and product design of LLMs in which a provider sells menus of token budgets to users who differ in their valuations across a continuum of tasks. Under a homogeneous production technology, we show that users' high-dimensional type profiles are summarized by a scalar index, reducing the seller's problem to one-dimensional screening. The optimal mechanism takes the form of committed-spend contracts: buyers pay for a budget that they allocate across token classes priced at marginal cost. We extend the analysis to environments with multiple differentiated models and to competition between a proprietary leader and an open-source fringe, showing that competitive pressure reshapes both the intensive and extensive margins of compute provision. Each element of our theory (token-budget menus, maximum- and minimum-spend plans, multi-model versioning, and linear API pricing) has a direct counterpart in the observed pricing practices of providers such as Anthropic, OpenAI, and GitHub. |
| Date: | 2026–03–07 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2502 |
| By: | Sayantan Ghosal; Łukasz Woźny |
| Abstract: | Although a Condorcet winner commands a majority in its favor, there is no guarantee of unanimity. In a Lindahl equilibrium, a suitably chosen system of personalized transfers and prices ensures unanimity, but there is no guarantee of a majority vote in its favor. Do Lindahl equilibria decentralize Condorcet winners? In a setting where voters' preferences are satiated, characterized by bliss points, this paper proposes a new balancedness condition which is satisfied when a Condorcet winner lies within the interior of the convex hull of voters' bliss points. We show that such a political compromise between the most preferred policies of different voter types can be decentralized as Lindahl equilibria. |
| Keywords: | Bliss points, Condorcet winner, Lindhal equilibria, balancedness |
| JEL: | D50 D61 D71 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2024101 |
| By: | Ricardo Martinez; Juan D. Moreno-Ternero |
| Abstract: | We study the design of fair allocation rules for the abatement of riparian pollution. To do so, we consider the so-called river pollution claims model, recently introduced by Yang et al. (2025) to distribute a budget of emissions permits among agents (cities, provinces, or countries) located along a river. In such a model, each agent has a claim reflecting population, emission history, and business-as-usual emissions, and the issue is to allocate among them a budget that is lower (or equal) than the aggregate claim. For environmental reasons, the specific location along the river where pollutants are emitted is an important concern (the more upstream the location is the higher the damage of polluting the river). We characterize a class of geometric rules that adjust proportional allocations to compromise between fairness and environmental concerns. Our class is an alternative to the one proposed by Yang et al. (2025). We compare both alternatives through an axiomatic study, as well as an illustration for the case study of the Tuojiang Basin in China. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.04345 |
| By: | Grappe, Roland (Université Paris Dauphine); Lacroix, Mathieu (Université Sorbonne Paris Nord); Pisanu, Francesco (Université catholique de Louvain, LIDAM/CORE, Belgium) |
| Abstract: | This paper investigates integrality properties of perfect matching polytopes, focusing on box-total dual integrality and integer decomposition properties. We begin by characterizing the graphs whose perfect matching polytope is a slice of the nonnegative orthant, identifying these as the solid graphs introduced by de Carvalho, Lucchesi, and Murty in “On a Conjecture of Lovász Concerning Bricks: I. The Characteristic of a Matching Covered Graph” (Journal of Combinatorial Theory, Series B). As a result, we show that the perfect matching polytope of solid graphs admits a compact description, and we establish that deciding the box-total dual integrality of a perfect matching polytope can be done in polynomial time. Additionally, we characterize the conditions under which perfect matching polytopes of two fundamentalgraphclasses, namelynear-bricksandbicriticalgraphs, arebox-totallydualintegral. We discuss implications of these results for identifying perfect matching polytopes with the integer decomposition property. This in particular unveils a new positive case of the generalized Berge-Fulkeron conjecture. |
| Keywords: | Perfect matching polytope ; Box-totally dual integral polyhedron ; Integer decomposition property |
| Date: | 2024–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2024032 |
| By: | Nicolas Eschenbaum; Nicolas Greber |
| Abstract: | This paper studies how platform design shapes strategic behavior in decentralized electricity trading. We develop a finite-horizon dynamic game in which photovoltaic- and battery-equipped players ("prosumers") trade on a platform that maps aggregate imports and exports into internal buy and sell prices. We establish existence of a perfect conditional epsilon-equilibrium and characterize a Cournot-like market-power mechanism in an observable-types benchmark of the game: because the producer price is decreasing in aggregate exports, strategic prosumers withhold supply and underutilize storage relative to the price-taking benchmark. To quantify these effects, we use a multi-agent computational framework that exploits the differentiable structure of the platform's clearing rule to compare planner, price-taking, and strategic outcomes under alternative pricing mechanisms. In our baseline calibration, strategic play raises grid settlement cost by about 6 percent relative to price-taking. The magnitude of the distortion depends strongly on platform design: some designs can largely eliminate strategic incentives, while increased competition in storage ownership sharply reduces withholding, with most of the distortion disappearing once storage is split across more than three owners. We also find that information disclosure can improve competitive coordination but also increase the market power effects. Despite these distortions, the platform remains highly valuable overall, reducing a passive consumer's annual electricity bill by roughly 40 percent relative to exclusive grid settlement, with strategic behavior clawing back only about 8 percent of that saving. The results show that pricing rules, information disclosure, and ownership structure determine how much of the gains from decentralized electricity trading are realized. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.19988 |
| By: | Yeganeh Alimohammadi; Karissa Huang; Christian Borgs; Jennifer Chayes |
| Abstract: | Online social platforms increasingly rely on crowd-sourced systems to label misleading content at scale, but these systems must both aggregate users' evaluations and decide whose evaluations to trust. To address the latter, many platforms audit users by rewarding agreement with the final aggregate outcome, a design we term consensus-based auditing. We analyze the consequences of this design in X's Community Notes, which in September 2022 adopted consensus-based auditing that ties users' eligibility for participation to agreement with the eventual platform outcome. We find evidence of strategic conformity: minority contributors' evaluations drift toward the majority and their participation share falls on controversial topics, where independent signals matter most. We formalize this mechanism in a behavioral model in which contributors trade off private beliefs against anticipated penalties for disagreement. Motivated by these findings, we propose a two-stage auditing and aggregation algorithm that weights contributors by the stability of their past residuals rather than by agreement with the majority. The method first accounts for differences across content and contributors, and then measures how predictable each contributor's evaluations are relative to the latent-factor model. Contributors whose evaluations are consistently informative receive greater influence in aggregation, even when they disagree with the prevailing consensus. In the Community Notes data, this approach improves out-of-sample predictive performance while avoiding penalization of disagreement. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.18053 |