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on Economic Design |
| By: | Marcin Anholcer; Maciej Bartkowiak; Bart{\l}omiej Bosek; Jaros{\l}aw Grytczuk |
| Abstract: | We study the problem of fair division of indivisible goods with constraints imposed by a prescribed independence structure, that is, a family of subsets of goods closed under taking subsets. As a motivating example, imagine that the goods to be divided are the available connections in a logistic, financial, or social network. The admissible bundle of goods for each agent must correspond to an acyclic set of edges, corresponding to a basic feasible solution to a linear network problem to be solved. Suppose that all agents assign the same value to each good (in the example, the network connections are equally important for every agent) and evaluate each bundle by summing the values of its goods. Is there a fair partition of the goods into such acyclic bundles? Surprisingly, the answer is yes, provided that the number of agents is at least the arboricity of $G$, and the fairness requirement is envy-freeness up to one good (EF1). The situation becomes more mysterious when agents have arbitrary additive valuations. Our main result guarantees that, in this case, epistemic EF1 partitions always exist, which means that each agent receives an acyclic bundle for which there exists a feasible partition of the remaining goods into acyclic bundles that they do not envy up to one good. We derive this conclusion from a general result for abstract independence structures defined on the sets of goods. We also discuss connections with several conjectures concerning matroids. In particular, we prove that any Hamiltonian matroid partitionable into two independent sets admits an EF1 bipartition with respect to a common monotone valuation. We complement our results with a constructive perspective: we present explicitly two algorithms for computing the fair allocations described above. Finally, we provide illustrative examples to demonstrate these algorithms on specific instances. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.11494 |
| By: | Kiho Yoon |
| Abstract: | We study optimal auction design when the direction of bidders' deviations is restricted. We show that the optimal revenue when bidders can only underbid their true values cannot exceed the optimal revenue when bidders may freely underbid or overbid. Thus, unidirectional incentive compatibility is sufficient for full incentive compatibility for revenue maximization. We prove this equivalence through linear programming duality in a discrete model, which makes it possible to analyze the feasibility of allocation rules in multi-agent environments. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.03051 |
| By: | Yanchen Jiang; David C. Parkes; Tonghan Wang |
| Abstract: | Characterizing revenue-optimal auctions for multi-item, multi-bidder settings remains a fundamental open problem, with no known closed-form solution existing beyond restrictive binary-type instances. This has motivated interest in computational approaches to optimal auction design. In this paper, we introduce the first computational framework that directly tackles the dual problem for multi-item, multi-bidder auctions and dominant-strategy incentive compatibility (DSIC), generating certified revenue upper bounds. Our approach parametrizes Lagrange multipliers with a structurally guaranteed strict flow-conservation property using neural networks, enabling efficient optimization over feasible dual solutions via gradient descent. To bridge the gap between discrete computational methods and theoretical guarantees for continuous types, we develop a novel lifting technique that maps dual certificates from coarse discretizations to fine refinements. We prove that lifting gives valid revenue upper bounds for multi-item, multi-bidder auctions with continuous uniform valuations. Furthermore, we give a generalized lifting construction for arbitrary continuous distributions and demonstrate that these lifted duals converge to the revenue of the original continuous problem in the discrete limit. We validate this computational framework for the dual auction design problem by recovering known analytical mechanisms for canonical instances. For multi-item multi-bidder problems, our framework establishes a small gap between the optimal revenue and best-known DSIC mechanisms, providing computational certificates of near-optimality. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.10112 |
| By: | Irene Aldridge |
| Abstract: | We develop a game-theoretic framework that compares welfare efficiency across three market mechanisms: continuous double auctions with transparent order books (lit exchanges), opaque order books (dark pools), and periodic batch auctions. Each mechanism is modeled as a queuing system where heterogeneous traders face trade-offs between the execution price, waiting costs, and transaction costs. Our main result establishes that under moderate arrival rates and bounded adverse selection, dark pools dominate both alternatives in aggregate ex-ante welfare. Observable order books create costly strategic timing games in which traders delay or rush submissions to optimize their position in the queue, generating wasteful social waiting costs. Opaque order books eliminate these timing games through information design. We formally characterize the equilibrium strategies in each mechanism and prove the welfare ranking $W^{DARK} > W^{LIT} > W^{BATCH}$. Extensions incorporate asymmetric information and endogenous venue choice. The results demonstrate how the information structure and the discipline of the service jointly determine efficiency in strategic matching environments. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.31072 |
| By: | Yukihiro Hoshino; Ayato Kitadai; Nariaki Nishino |
| Abstract: | This study examines whether standard matching mechanisms function as intended in LLM-agent markets, where LLM agents make allocation-related decisions as delegated decision-makers. We compare decentralized free-negotiation markets with centralized mechanism-based markets including several representative mechanisms. Across controlled one-to-one matching environments, mechanism-based markets generally outperform free negotiation in terms of stability and efficiency. We also find that LLM agents report preferences truthfully at substantially higher rates than human subjects in comparable DA and EADA environments. However, truth-telling is not uniformly aligned with formal strategy-proofness across all mechanisms: TTC, despite being strategy-proof, does not always elicit higher truth-telling than EADA. These results suggest that matching theory provides a useful but incomplete guide for designing institutions in LLM-agent markets. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.03030 |
| By: | Will Sandholtz; Andrew Tai |
| Abstract: | We study stochastic object assignment problems in which objects may have minimum and maximum requirements, such as with classes with upper and lower enrollment bounds. We construct a new random assignment mechanism, the minimums probabilistic serial (MPS) mechanism, which generalizes the Probabilistic Serial mechanism of Bogomolnaia and Moulin (2001). The random allocation produced by MPS is guaranteed to be Pareto efficient; that is, there is no other implementable allocation that all agents prefer via first order stochastic dominance. We also show that MPS is i) envy-free, in that no agent will strictly prefer another agent's assignment, and ii) weak strategyproof, in that agents cannot achieve a better assignment by misreporting their preferences. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.26367 |
| By: | Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Hanssen, Pauline (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Tamura, Yuki |
| Abstract: | This paper studies reallocation problems where preferences are single-peaked and one agent is endowed with one unit of an infinitely divisible and non-disposable commodity. We characterize all allocations that belong to the core, i.e. no group of agents is better off by reallocating among themselves. Under excess supply, we show that all rules satisfying Pareto optimality and individual rationality select from the strong core. Under excess demand, we show that all rules satisfying Pareto optimality, individual rationality, and strategy-proofness select from the weak core, but there is no strategy-proof rule that selects from the strong core. |
| Keywords: | resource reallocation, single-peaked preferences, weak core, strong core |
| JEL: | D63 D71 D74 |
| Date: | 2026–06–08 |
| URL: | https://d.repec.org/n?u=RePEc:unm:umagsb:2026005 |
| By: | Jamie Tucker-Foltz; Richard Zeckhauser |
| Abstract: | A single seller offers one or more goods to a single buyer. The buyer's values and the seller's costs are private information. Each player has a commonly known prior over the other player's value or cost, supported on a finite set. What is the optimal selling mechanism? We argue that, despite this question's importance and apparent simplicity, prior work offers no satisfactory answer. If the seller simply chooses an optimal menu given her realized costs, she fails to exploit her informational advantage. At the other extreme, the optimal trade mechanism that satisfies IC/IR constraints for both parties fails in practice, as it conditions prices on the seller's unknown costs in an unenforceable way. The seller's realistic capabilities lie somewhere in between: she may leverage private information but lacks unlimited commitment power. To bridge this gap, we consider a solution concept built on the realistic assumption that the seller can commit to prices but nothing more. Similar -- albeit technically distinct -- solution concepts have been studied in the context of auctions with multiple buyers. Our concept proves surprisingly rich even with a single buyer. In our model, the buyer and seller engage in multiple rounds of cheap talk before the seller posts a menu of priced bundles. The buyer then purchases. We measure value as profit for the seller and consumer surplus for the buyer. We prove that with a single good cheap talk cannot help either party, but show that it creates value in any extension of this canonical setting: multiple goods, multiple units, interdependent values, or repeated play. We also show that multiple rounds of communication can yield strictly higher expected profit than a single round. Finally, we discuss how realistic factors beyond our stripped-down model combine with cheap talk to enhance this value even further. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.01250 |
| By: | Anna Vakarova |
| Abstract: | I provide a unified framework to establish the existence of a weak Pareto efficient, envy-free allocation in general settings: random allocations are probability measures on a compact metric space, and preferences of agents are represented by continuous, concave utility function on the space of probability measures. The generality of my setting nests the existence results for small spaces with indivisibles -- the list of prominent applications includes the school assignment problem and the house allocation problem. The technique developed to prove the existence also applies to allocation problems with divisibles, like fair cake-cutting or land-division problems. Here I also show that even when agents' preferences are not atomless, the allocation in question can be represented as a probability measure over partitions with finite support. Last but not least, I apply the existence result to new allocation problems that no existing framework encompasses. These include allocation of indivisible goods or services over time and allocation of differentiated goods. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.28263 |
| By: | Frank M. V. Feys |
| Abstract: | No deployed automated market maker lets its liquidity providers vote on the trading function. We show this is structural, not an oversight. On the weighted-product family with $n \geq 3$ assets, no aggregation rule is at once fair and strategy-proof. Arrovian fairness forces a unique form, the weighted Aitchison centroid, the weighted geometric mean of the providers' preferred pools. But fairness forces mean-type aggregation and strategy-proofness forces median-type, and the only rule that is both is a single-provider dictator. The obstruction is sharp: it vanishes at $n = 2$, where a fair strategy-proof rule exists. Under the Frongillo--Papireddygari--Waggoner equivalence, the centroid is Genest's logarithmic opinion pool, and the impossibility transfers to externally Bayesian pooling. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.04959 |
| By: | Dean P. Foster; Sergiu Hart |
| Abstract: | The classic concept of "calibrated forecasts" and its more recent refinement, "calibeating, " are defined with respect to the standard quadratic scoring rule. We extend these notions to the class of $\textit{proper}$ scoring rules (for which the best forecast is the true distribution) and define $\textit{proper-calibration}$ and $\textit{proper-calibeating}$ by requiring the errors to converge to zero uniformly over all bounded proper scoring rules. We first establish that calibration always implies proper-calibration, whereas calibeating need not imply proper-calibeating. Second, we show how to guarantee proper-calibeating and proper-multicalibeating. Finally, we demonstrate the equivalence between proper-calibration and universal no regret when best replying to forecasts in decision-making under uncertainty. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.26703 |
| By: | Christopher Blier-Wong; Jean-Gabriel Lauzier |
| Abstract: | While risk pooling lowers the total cost of risk, efficiency alone does not make a pool viable. Participants need terms that ensure their participation, that are immune to subgroups breaking away, and that allow new members to join. Under cash-additive risk measures, the minimum cost of a coalition's risk determines the value created by that coalition, and deterministic side payments redistribute that value among participants. Institutional risk sharing is thus a transferable-utility cooperative game. We prove that the game is totally balanced whenever the risk measures are convex (agents are risk averse), so every coalition has a nonempty core and stable allocations always exist. We then analyze entry monotonicity through Population-Monotonic Allocation Schemes (Sprumont, 1990), a strong requirement that is notoriously difficult to construct and has received limited attention in risk sharing. We find several structural conditions that ensure that either the Arrow--Debreu pricing surplus allocation rule or the proportional-cost surplus allocation rule satisfies this entry-monotonicity property, the latter being a novel cooperative notion we propose. These verifiable structural conditions naturally arise in pooled (re)insurance and credit portfolios, providing pool designers with a practical toolkit for building risk pools that remain stable and attractive as they expand. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.00972 |
| By: | Irene Aldridge |
| Abstract: | We study the problem of auditing a black-box algorithmic decision-maker from observable inputs and outputs alone. Our main result is an exact decomposition: under precisely characterized conditions, the cumulative \emph{regret} of a dynamic policy equals the sum of per-period covariances between the cost vector and the policy's decision. This extends the single-period identity of Aldridge~(2026) to the full multi-period setting of stochastic dynamic programming. We prove the identity holds exactly under i.i.d. costs and mean-unbiased Markov policies, derive closed-form bias corrections for non-stationary and time-varying cases, and establish the discounted-horizon analog. A Bellman recursion for the covariance regret functional connects the result to standard reinforcement learning algorithms; for rolling-window policies, the estimation-error bias is $O(d/w)$. The decomposition has direct implications for algorithmic auditing in strategic environments: in platform mechanism design, it provides a welfare-based audit metric without access to the agent's private type; in repeated games, covariance reduction is a sufficient condition for policy improvement; in procurement and ad auctions, the bias correction quantifies welfare loss from strategic misreporting. The associated trajectory estimator is consistent, asymptotically normal with HAC variance, and computable in $O(T \cdot nd)$ time. This makes the proposed approach a tractable, model-free audit tool for platform mechanisms, algorithmic portfolio strategies, and any sequential decision system subject to external performance review. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.08791 |
| By: | Zhicheng Du; Hu Fu; Ying Qin; Zihe Wang |
| Abstract: | Advertisements often strategically disclose information to consumers who make decisions on further information acquisition and eventual purchase. Anderson and Renault (2006) model this problem using an information design framework, where the advertiser acts as a sender and the consumer as a receiver. We extend this model to a competitive setting with horizontally differentiated senders competing for a unit-demand receiver. Under costly inspection, the receiver's optimal sequential search action is given by Weitzman's Index Algorithm. We give a method, based on duality arguments, to verify whether a sender's given information strategy constitutes a best response against his competitors (other senders). We establish the existence of an equilibrium in the game among senders when the prior distributions have no mass; we also illustrate that such equilibria may exhibit intricate behaviors. Finally, we meticulously characterize symmetric equilibria played by the senders for cases when the prior distributions have monotone increasing densities, while offering economic intuitions behind the insightful equilibrium structure. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.03527 |
| By: | Ronen Gradwohl; Fengming Hu; Rann Smorodinsky |
| Abstract: | We study the robustness of Bayesian persuasion to uncertainty about the receiver's preferences. We analyze two conceptually distinct notions: continuity, in which only the modeler lacks precise knowledge, but where the model's predictions are nonetheless accurate; and robustness, in which the sender also lacks precise knowledge, but where the outcome is insensitive to this ignorance. We model preference uncertainty as infinitesimally small, non-probabilistic (Knightian) uncertainty, and the sender's behavior as either minimizing the regret or maximizing the minimum utility. We show that continuity holds if and only if robustness holds, and that both notions are generic. Thus, while some instances of Bayesian persuasion are fragile, typical instances are both continuous and robust with respect to a small amount of ignorance. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.28265 |
| By: | Saakstra, Sake |
| Abstract: | We evaluate six major clean-hydrogen policy interventions across four jurisdictions (US 45Q, US 45V three-pillars NPRM, EU Innovation Fund, EU CBAM, UK Track-1, China 14th Five-Year Plan) using a project-level panel of 1, 354 announced hydrogen developments from the S&P Global Hydrogen Project Database (2010-2026). Treatment effects on cumulative cancellation probability are estimated using modern difference-in-differences estimators (Sun-Abraham IW, Borusyak-Jaravel-Spiess imputation, IPWRA matching, Synthetic DiD, Causal Forests, and Deaner-Ku hazard DiD) and accompanied by Rambachan-Roth honest-sensitivity bounds. Three substantive findings emerge. First, the magnitude ranking of policy effects (China 14th FYP > US 45Q > UK Track-1 > EU Innovation Fund) systematically follows the number of economic frictions each instrument addresses, not the per-unit monetary value of the subsidy. The China FYP estimate of -4.5 percentage points (honest-DiD breakdown M* = 1.5) exceeds the US 45Q estimate of -3.4 percentage points (M* = 0.2) despite comparable per-unit subsidy value, consistent with multi-friction mechanism dominance. Second, two informative nulls are identified: the EU Innovation Fund produces a precise null across six convergent estimators, and the EU CBAM produces a precise null across eight convergent estimators. The substantive interpretation is that the financing-constraint friction is not binding in the contemporary capital-abundant hydrogen environment, and that border-adjustment transmission to project-level investment decisions is weak in the early-implementation phase. Third, the US 45V three-pillars NPRM triple-difference estimate of +0.285 on US-Green cancellation hazard identifies friction amplification by policy design - the cleanest empirical test of perverse-direction sigma-channel effects in the sample. The methodological contribution is a pre-registered mechanism-falsifiability framework that disciplines mechanism interpretation against post-hoc rationalisation, combined with multi-method triangulation that strengthens both confirmatory and informative-null inferences. The policy implication is that reform of capex-grant instruments such as the EU Innovation Fund should incorporate offtake-commitment eligibility requirements, jointly addressing both financing and counterparty-risk frictions. |
| Keywords: | difference-in-differences, honest sensitivity, clean hydrogen, carbon pricing, policy evaluation, mechanism design, carbon border adjustment |
| JEL: | C21 C23 Q42 Q48 |
| Date: | 2026–05–28 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129309 |
| By: | Hongcheng Li |
| Abstract: | A principal who offers a contract may renege when her default option is sufficiently attractive. The size of this temptation, which measures her commitment power, is often her private information. This paper asks how contracting outcomes change under this information asymmetry. Disciplining off-path beliefs with the Intuitive Criterion, I find that every type of principal behaves and earns payoffs exactly as if she were commonly known to have the least commitment power. Hidden commitment power is therefore powerless. The result delivers an unambiguous policy lesson on how to mitigate this information asymmetry prior to contracting: only measures that improve the worst case have value. Applied to credit rating, it rationalizes the monotone-partitional structure widely used in practice. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.02769 |