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on Economic Design |
| By: | Jantschgi, Simon; H.Nax, Heinrich; Pradelski, Bary; Pycia, Marek |
| Abstract: | Double Auctions are among the most widespread market mechanisms that clear demand and supply in two-sided markets, notably on major stock exchanges. We provide a definition of Double Auctions that applies to both finite and infinite markets and is well-behaved in the limit. Our definition nests earlier formulations and allows us to formalize the Reference-Price Double Auction commonly used on stock exchanges. Our definition does not rely on any regularity assumptions and allows for ties and gaps in reported quotes, two phenomena that occur in practice. We axiomatize the class of Double Auctions in general as well as specific, prominent pricing rules. Finally, we provide a sufficient condition on traders’ beliefs under which Double Auctions are asymptotically incentive-compatible, implying, in particular, that they are always Strategy-Proof in the Large. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19690 |
| By: | Ichihashi, Shota; Jeon, Doh-Shin; Kim, Byung-Cheol |
| Abstract: | We study a mechanism design problem of a monopoly platform that matches content of varying quality, ads with different ad revenues, and consumers with heterogeneous tastes for content quality. The optimal mechanism balances revenue from advertising and revenue from selling access to content: Increasing advertising revenue requires serving content to more consumers, which may reduce access revenue. Contrary to the standard monopolistic screening, the platform may serve content to consumers with negative virtual values while, to reduce information rents, limiting their access to higher-quality content. Then, an increase in ad profitability reduces its incentive to invest in content quality. |
| JEL: | D42 D82 L15 O31 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19675 |
| By: | Ma, Tianyu (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | We analyze first-price sealed-bid auctions with independent private values in which bidders are uncertain about the distribution of their opponents’ valuations and have smooth ambiguity preferences. We characterize the unique non- decreasing symmetric equilibrium, whose bidding function solves a nonlinear ordinary differential equation with an endogenous ambiguity-adjusted distribution. Bids increase in ambiguity aversion, lie between the Bayesian benchmarks generated by the least and most competitive candidate priors, and converge to the maxmin benchmark. Under constant relative ambiguity aversion (CRAA), the equilibrium biding function is explicit. We also compare auction formats. Under an ex ante predictive criterion, the second-price auction dominates under ambiguity neutrality, but sufficiently strong ambiguity aversion reverses the ranking. Under a model-based criterion, the first- price auction performs better in less competitive environments and worse in more competitive ones, while compressing the range of possible revenues. Bidder preferences also depend on ambiguity attitudes: CRAA bidders weakly prefer the second-price auction, whereas bidders with increasing absolute ambiguity aversion weakly prefer the first-price auction. |
| Keywords: | First-price auctions, smooth ambiguity, ambiguity aversion, Knightian uncertainty, auction design, revenue comparison |
| Date: | 2026–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:769 |
| By: | Dirk Bergemann (Yale University); Marek Bojko (Yale University) |
| Abstract: | We study efficient dynamic mechanism design with independent private values when agents do not share a common prior over the stochastic environment. Each agent privately observes the stochastic kernel governing the evolution of her own type and may hold arbitrary beliefs about the kernels of others. We extend the agentsÕ type space to include the kernel itself and show that the dynamic team mechanism of Athey and Segal (2013) and the dynamic pivot mechanism of Bergemann and VŠlimŠki (2010) implement the socially efficient allocation in periodic ex-post equilibrium. We further show that kernels can be elicited only once, at the outset, and that the same mechanisms induce the efficient private acquisition of the stochastic kernels. |
| Date: | 2026–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2540 |
| By: | Itai Ashlagi; Shahr Dobzinski Jacob D. Leshno; Sigal Oren |
| Abstract: | Consider a revenue-maximizing seller who can access a binary signal about two bidders` joint values. We explore what kind of information is most valuable to the seller by studying three classes of signals, each capturing a distinct dimension of bidders` values: their overall level (demand), their relative strength (ranking), and their dispersion while preserving bidder anonymity (competitiveness). We characterize the optimal signal and corresponding auction mechanism within each class, and find that competitiveness signals are particularly effective. Under certain regularity conditions, the optimal competitiveness signal yields at least as much revenue as any ranking signal or demand signal. Moreover, for signals that induce a monotone allocation, the optimal competitiveness signal yields at least as much revenue as any other binary signal. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.06623 |
| By: | Pycia, Marek; Troyan, Peter |
| Abstract: | Random Priority is a popular mechanism used to allocate a set of objects to a set of agents without the use of monetary transfers. Random Priority is appealing because it satisfies desirable efficiency, fairness, and incentive properties. Is it the only mechanism with these properties? We answer this long-standing question in the positive: Random Priority is the unique mechanism that is Pareto efficient, symmetric, and obviously strategy-proof. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19689 |
| By: | Combe, Julien; Dur, Umut; Tercieux, Olivier; Terrier, Camille; Ünver, M. Utku |
| Abstract: | Centralized (re)assignment of workers to jobs is increasingly common in public and private sectors. However, these markets often suffer from distributional problems. We propose a new strategy-proof mechanism that efficiently improves individual and distributional welfare over the status quo. We justify our constructive and practical approach by microfounding it through the theory of inequality measures in welfare economics. To evaluate the performance of our mechanism, we focus on teacher (re)assignment, where the unequal distribution of experienced teachers across schools is a well-documented concern. Using French data, we demonstrate that our mechanism reduces the teacher experience gap across regions more effectively than benchmarks, including the current mechanism, while providing higher average welfare for teachers. |
| Keywords: | Efficiency |
| JEL: | C78 D50 D61 D47 I21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19893 |
| By: | Kamenica, Emir; Lin, Xiao |
| Abstract: | When does a Sender, in a Sender-Receiver game, strictly value commitment? In a setting with finite actions and finite states, we establish that, generically, Sender values commitment if and only if he values randomization. In other words, commitment has no value if and only if a partitional experiment is optimal under commitment. Moreover, if Sender's preferred cheap-talk equilibrium necessarily involves randomization, then Sender values commitment. We also ask: how often (i.e., for what share of preference profiles) does commitment have no value? For any prior, any independent, atomless distribution of preferences, and any state space: if there are n actions, the likelihood that commitment has no value is at least 1/n^n. As the number of states grows large, this likelihood converges precisely to 1/n^n. |
| Keywords: | Bayesian persuasion |
| JEL: | D80 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19759 |
| By: | Weijie Zhong |
| Abstract: | I develop a duality-based multi-dimensional screening framework with a geometric characterization of combinatorial preferences. For a mechanism to be optimal, the type distribution pins down \emph{required} directions of binding feasibility constraints, while the complementarity among bundles determines the \emph{covered} directions; optimality reduces to full coverage of required directions. I apply the framework to a one-parameter family in which every bundle containing a fixed \emph{core} of items earns a complementarity premium. Two thresholds organize the optimum: above a lower threshold the grand bundle must be offered; above a higher threshold a \emph{core-peripheral} menu -- a bundled core with optional add-ons that are not sold standalone -- is optimal. The tight distributional condition for finiteness of the higher threshold is \emph{inclusivity}, that the menu exclude no near-top buyer. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.07982 |
| By: | Akshit Kumar (Yale University); Vahideh Manshadi (Yale University); Akhilesh Tumu (Yale University) |
| Abstract: | Conversational recommender systems powered by generative AI can enhance personalization by facilitating information elicitation through follow-up questions. However, engaging in these conversations imposes a communication cost on users. As platforms with different objectives and monetization models deploy these systems, a central question is: how does the platformÕs objective and sellersÕ strategic response shape the design of these systems in terms of their elicitation strategy? We develop a parsimonious model of conversational elicitation in which interaction generates noisy preference information and imposes a communication cost borne by the user. A user-welfare-maximizing platform elicits more information when accurate niche matching yields large gains, even when niche users are rare. In contrast, under a conversion objective, for the same setting, the optimal strategy is to immediately recommend the same mainstream option to all users with no or minimal preference elicitation because the incremental conversion benefit from improved matching is bounded, while communication costs are borne by all users. When prices are endogenous and the platform earns a commission, increased elicitation is again optimal because improved screening raises equilibrium prices and platform revenue; however, these price responses can counteract consumer benefits and reduce user welfare. The model also highlights that the optimal elicitation intensity increases with preference heterogeneity, helping explain why conversational systems ask more in highly differentiated categories than in low-heterogeneity ones. We complement the theory with a dataset of long-form product queries that vary in length and informational content. Using our dataset and LLM-based user simulation, we quantify how additional information impacts user decisions and demonstrate that the magnitude of this impact depends on the degree of preference heterogeneity. Additionally, this dataset provides a testbed for measuring the (incremental) value of preference elicitation and may be of independent interest. |
| Date: | 2026–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2545 |
| By: | Gorkem Celik; Roland Strausz |
| Abstract: | This paper studies monopolistic certification in markets where sellers possess partial private information about product quality. A certifier can provide information through two channels: screening sellers’ private information (soft information) and acquiring new quality data (hard information). We prove that any certification menu achieving less than maximal screening is Pareto dominated by one with full screening. Among Pareto-efficient menus, the certifier’s profit-maximising menu provides maximal soft information while restricting hard information provision. The two channels diverge because screening creates value the certifier can fully capture, whereas hard information amplifies costly information rents. Using power value functions, we derive comparative statics showing that information restrictions target low-quality sellers when information value is moderate, but high-quality sellers receive perfect quality revelation when information value is high. |
| Keywords: | certification, disclosure, screening, information acquisition, monopolistic distortions |
| JEL: | D82 |
| Date: | 2026–07–13 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0104 |
| By: | Christopher P. Chambers; M. Bumin Yenmez |
| Abstract: | A choice rule is $q$-acceptant if it chooses $\min\{q, |X|\}$ alternatives from each set $X$. We show that a path-independent rule of maximum cardinality at most $q$ need not have a $q$-acceptant path-independent expansion, refuting Chambers and Yenmez (2017, Theorem 4). We construct a one-school matching market whose unique stable matching leaves a seat vacant that no path-independent expansion of the school's rule fills. Every path-independent rule satisfying the law of aggregate demand has such an expansion. We characterize the choice rules admitting an acceptant expansion by monotone selections of rejected alternatives. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.07022 |
| By: | Otsu, Taisuke; Pesendorfer, Martin |
| Abstract: | This paper introduces a novel method for assessing conduct and welfare in demand/supply product markets, departing from conventional supply-side assumption and embracing a mechanism design approach. Our proposed measures are robust to assumptions about the details of the market game being played and the strategic choice variable. To evaluate the effectiveness of our method, we examine the soft drink market, benchmarking it against (i) markup estimates from accounting data and (ii) the pass-through estimates from the difference-in-difference literature. We show that our cost estimates are inline with the benchmarks. Finally, we show that the resulting welfare estimates are significantly lower than those obtained using the traditional Bertrand or Cournot models. |
| JEL: | D12 D90 D91 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19567 |
| By: | Doyle, Christopher |
| Abstract: | Capacity markets are increasingly used to secure electricity-system reliability, but their auction designs raise persistent concerns about market power. This paper examines strategic capacity withholding in the British Capacity Market, which procures future capacity through a three-stage process: pre-qualification, disclosure of aggregate qualified supply, and a descending-clock auction with a uniform clearing price. We develop a formal model in which a small number of large portfolio bidders interact with a competitive fringe of uncertain size. The central result is that the same auction rule generates different observable forms of market power depending on bidders’ information about fringe supply: under full information, strategic bidders withhold capacity ex ante by limiting entry at pre-qualification, with no subsequent withdrawal; under imperfect information, capacity may instead be withdrawn after disclosure or during the clock auction as bidders update beliefs about market tightness. The absence of visible in-auction withdrawal is therefore consistent with maximal strategic withholding rather than competitive behaviour. We further derive a closed-form threshold for the per-unit cost of withdrawal: withholding remains profitable even under substantial institutional frictions, and the threshold rises with portfolio size and with the spread between clearing prices in tight and loose market conditions, so strategic withholding is strongest precisely when reliability conditions are most stressed. We relate the framework to recent GB auction outcomes and develop a stage-specific policy taxonomy, highlighting the role of contestability-enhancing reforms alongside direct auction mitigation. |
| Keywords: | auction design;capacity markets;capacity withholding;descending clock auctions;market power;electricity market regulation |
| JEL: | D44 L94 Q41 |
| Date: | 2026–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:139055 |
| By: | Bobkova, Nina |
| Abstract: | This paper shows how the voting rule impacts which characteristics of an alternative voters learn about. Before casting their vote, voters face a trade-off between learning about an objective quality of the alternative or about their idiosyncratic match. I show that the further the quota is from majority rule, the less voters learn about the objective quality of the alternative and the more dispersed are their beliefs about it. Among all quotas, the majority rule uniquely (i) aligns votes and beliefs, (ii) maximizes voters’ ex-ante utility, and (iii) aggregates full information for large elections. |
| Keywords: | Committees; Information acquisition |
| JEL: | D71 D72 D82 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19777 |
| By: | Schöttner, Anja; Upton, Harvey |
| Abstract: | A principal hiring an agent chooses between employment and self-employment. Under employment, the principal can control the manner in which the agent performs the assignment (the ‘work design’), whereas this is legally forbidden under self-employment. Due to incomplete contracts, the relationship is governed by relational agreements, which are influenced by the allocation of control. We show that employment typically results in an over-demanding work design, compared to an under-demanding work design under self-employment, and that employment relationships are more rigid and better suited to favorable production environments. We further examine the impact of taxation, minimum wages, and formal performance pay. |
| JEL: | D86 M55 L23 L24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19688 |
| By: | Mei Dong; Janet Hua Jiang; Ling Sun |
| Abstract: | Conventional wisdom suggests that information transparency about prices lowers prices and markups by intensifying seller competition. However, in markets with costly buyer entry, price transparency also draws in more buyers, increasing demand-side competition and putting upward pressure on prices. We show that this buyer entry effect may dominate, and prices and markups may rise with information transparency. |
| Keywords: | Models and tools, Economic models |
| JEL: | D40 D83 L11 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-4 |
| By: | Bergemann, Dirk; Gan, Tan; Li, Yingkai |
| Abstract: | We study a sender-receiver game in which the receiver can commit to a decision rule before the sender determines the information policy. We ask how the receiver should commit, in advance, to a rule that maps the information of the sender into decisions-when the receiver knows neither the sender’s true preferences nor the full range of information the sender could supply. To handle this dual uncertainty, we adopt a unified robust framework that nests max-min utility, min-max regret, and min-max competitive ratio as special cases. Across all criteria, the same answer emerges: the optimal rule is always a quota rule. |
| Keywords: | communication;commitment;partial alignment;quota rules;min-max regret;max-min utility;competitive ratio |
| JEL: | D82 D83 |
| Date: | 2026–07–21 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140351 |
| By: | Madarász, Kristóf; Pycia, Marek |
| Abstract: | A privately-informed buyer takes an action that impacts the distribution of information between her and the seller. The available actions differ in both content (what information is revealed and what remains hidden) and costs. For a large class of trading environments where buyers can choose from an arbitrary set of dynamic signal-generating processes and the costs of these processes can depend on the buyer’s private information, we establish a "cost-over-content" theorem: buyers will only choose least expensive processes. We explore implications for data trade, market power, and the power of setting a default information structure in trade regulation. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19902 |
| By: | Tong Liu; Jacob Mays |
| Abstract: | Motivated by the rapid growth of data centers, we develop a model to evaluate bringyour-own-capacity (BYOC) mandates and flexibility accreditation in capacity markets for new large loads with shared supply-chain constraints. With efficient pricing, BYOC mainly reallocates procurement between grid-built and self-built capacity and therefore has little welfare effect, while flexibility delivers a modest gain by reducing the effective capacity requirement. Under administrative price caps, mandates can improve static welfare by forcing data centers to internalize the full cost of capacity. The welfare ranking of the two instruments depends on supply-chain stress. At low or moderate stress, only the flexibility instrument raises welfare. Under severe stress with capped prices, the welfare gain from the BYOC obligation can exceed the gross flexibility benefit. The two instruments differ in their effects on a neighboring market: a unilateral BYOC mandate can crowd out its capacity investment, while flexibility produces essentially no spillover at our calibrated benchmark. Finally, applying current capacity non-performance penalties to flexible loads may lead to financial incentives that are too weak to induce truthful flexibility reporting. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.06528 |
| By: | Wagner, Wolf; Zeng, Jing |
| Abstract: | We analyze the design of bailout regimes when investment is distorted by a too-many-to-fail problem. The first-best allocation equalizes benefits from more banks investing in high-return projects with endogenously higher systemic risk due to more banks failing simultaneously. A standard bailout policy cannot implement the first-best, as bailouts cause herding by banks. However, a targeted bailout policy that assigns banks to separate bailout regimes eliminates herding and achieves the first-best. When such a policy is not feasible, targeted bailouts can be implemented by decentralizing bailout decisions to independent regulators. Our results have various implications for the optimal allocation of regulatory powers, both at the international level and domestically. |
| JEL: | G1 G2 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19976 |
| By: | Park, Eunseong; Rausch, Sebastian; Karplus, Valerie J. |
| Abstract: | Border carbon adjustments (BCAs) are intended to limit carbon leakage while protecting domestic industry, but governments differ over whether border charges should price total embodied emissions or only emissions above an intensity benchmark. We study this design choice in a plant-level general equilibrium model of the global steel industry with heterogeneous technologies and vertical supply chains. A rate-based BCA is equivalent to an emissions charge combined with an implicit output sub-sidy. It therefore weakens the carbon-price signal, encourages reshuffling of cleaner output toward the regulated market, and can induce leakage through underpriced carbon-intensive intermediates. In an EU-style setting with domestic carbon pricing, the rate-based design transmits only 36% of the mass-based border price needed to achieve the same global emissions reduction and yields larger welfare losses. In a US-style setting without a domestic carbon-price anchor, it mainly shifts rents toward domestic downstream industries rather than inducing abatement abroad. |
| Keywords: | border carbon adjustments, carbon leakage, climate policy, steel industry, general equilibrium, vertical supply chains, emission intensity benchmarks |
| JEL: | F18 Q58 H23 L61 C63 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:341977 |
| By: | David M. Rothschild; Nicole Immorlica; Brendan Lucier; Markus Mobius; Aleksandrs Slivkins |
| Abstract: | Digital search is undergoing a fundamental transformation from a human-driven process of discovery to an agent-mediated system of delegated decision-making. In the traditional model of digital search, users translate intent into keyword-based queries, evaluate ranked lists of links, and execute decisions outside the search interface. In an AI-native world, users express goals in natural language, agents interpret these intentions, and outcomes are returned as recommendations or executed decisions. This shift moves search from a link-based user interface to an embedded system component, with implications for transparency, competition, and monetization. The resulting system design problem raises key questions about information quality and access, trust, incentive alignment, and market structure. Early evidence from experimental agent-mediated marketplaces and economic theory suggests that small design choices, such as how stakeholders access information, how options are surfaced, and how actions are executed, have first-order effects on efficiency, competition, and the welfare of consumers and firms. We propose that the future of search will be determined not by incremental improvements in ranking algorithms and natural-language interfaces, but by the design of open, transparent, and competitive agentic systems that govern how decisions are made and how markets operate, highlighting a set of grand challenges at the intersection of AI, economics, and system design. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.21459 |
| By: | Hector Chade (Arizona State University); Victoria Marone (Yale University); Amanda Starc (Northwestern University); Jeroen Swinkels (Northwestern University) |
| Abstract: | We analyze a multidimensional screening model in which a principal offers a menu of quality-price pairs to a consumer with multiple dimensions of private information and a quasilinear utility function. We derive necessary conditions for optimality, and use them to provide insight into optimal exclusion, positive trade, and screening. We then recast the problem in terms of incremental quality levels and prices, the so-called demand-profile approach (DPA). Under DPA, the problem decouples across increments and can be solved one at a time. We provide novel conditions under which DPA recovers the solution to the full problem exactly or approximately, and which make the necessary conditions sufficient for optimality: essentially, valuations must be sufficiently correlated across quality increments. Applied to empirical estimates of demand for health insurance, we show that DPA is approximately valid, and we apply it to understand equilibrium outcomes in a monopoly insurance market. |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2541 |