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on Economic Design |
| By: | Penta, Antonio; Ollar, Mariann |
| Abstract: | We study a framework for robust mechanism design that can accommodate various degrees of robustness with respect to agents’ beliefs, and which includes both the belief-free and Bayesian settings as special cases. For general belief restrictions, we characterize the set of incentive compatible direct mechanisms in general environments with interdependent values. The necessary conditions that we identify, based on a first-order approach, provide a unified view of several known results, as well as novel ones, including a robust version of the revenue equivalence theorem that holds under a notion of generalized independence that also applies to non-Bayesian settings. Our main characterizations inform the design of belief-based terms, in pursuit of various objectives in mechanism design, including attaining incentive compatibility in environments that violate standard single-crossing and monotonicity conditions. We discuss several implications of these results. For instance, we show that, under weak conditions on the belief restrictions, any allocation rule can be implemented, but full rent extraction need not follow. Information rents are generally possible, and they decrease monotonically as the robustness requirements are weakened. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19482 |
| By: | Andersson, Tommy (Department of Economics, Lund University); Ehlers, Lars (Department of Economics, Lund University); Tierney, Ryan (Department of Economics, Lund University); Svensson, Lars-Gunnar (Department of Economics, Lund University) |
| Abstract: | We propose an endogenous architecture where a market designer can impose arbitrary restrictions on the price space, the capacity structure, the entitlement structure, and the rationing system (the architectural components). This not only generates a specific matching model, but it also endogenously generates an equilibrium concept, a domain of preference profiles, and a matching mechanism (the architectural structure). For almost any imposed restrictions, the endogenously generated mechanism is non-manipulable on the endogenously generated domain of preference profiles. The proposed endogenous architecture resolves the market design puzzle by demonstrating that seemingly disparate matching models, including many of the classic applications, are part of the same unifying architecture. |
| Keywords: | endogenous architecture; architectural components; architectural structure; general matching framework; weak equilibrium; non-manipulability |
| JEL: | C71 C78 D47 D71 D78 |
| Date: | 2026–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:lunewp:2026_007 |
| By: | Josué Ortega; Gabriel Ziegler; R. Pablo Arribillaga; Geng Zhao |
| Abstract: | We prove that any stable matching mechanism suffers from systematic inefficiency of striking magnitude: in large random markets, any stable allocation is Pareto-inefficient with high probability, and almost all students can simultaneously improve their placements without harming anyone else. We establish this result by showing that the envy digraph generated by the student-proposing Deferred Acceptance mechanism contains a unique giant strongly connected component, implying that nearly all students are improvable via trading cycles. Finally, we show that every maximal cycle packing covers almost all students, revealing a surprising asymptotic equivalence among all efficient mechanisms that Paretodominate DA. |
| Keywords: | unimprovable students, school choice, random markets |
| JEL: | C78 D47 |
| Date: | 2026–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0107 |
| By: | Emerson Melo; Matt Shum; Rakesh Vohra |
| Abstract: | Per-impression auctions have long served as the allocation mechanism in online advertising. We argue that in ``hands-off-the-wheel'' (HOTW) markets, where advertisers declare budgets and ``return-on-investment'' (ROI) targets and the exchange's ML models predict click values, auctions are no longer necessary: all information required for optimal pricing is already known to the exchange, which occupies the position of a monopolist pricing against a downward-sloping demand curve. A HOTW market is a Fisher market, whose competitive equilibrium can be computed via the convex program of Eisenberg and Gale, yielding market-clearing prices and allocations satisfying all budget and ROI constraints simultaneously. This competitive-equilibrium price is revenue-optimal for the exchange among all uniform-price mechanisms: avoiding the demand reduction problem in typical uniform-price multi-unit auctions. The resulting competitive equilibrium is moreover outcome-equivalent to sequential first-price auctions with pacing, with pacing multipliers computable ex-ante by the exchange. This one-shot approach replaces millions of individual auctions with one convex program, which is not only operationally simpler than dynamically evolving bidding strategies, but revenue-optimal for the exchange, while delivering the same equilibrium outcome. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.01591 |
| By: | Louise Demoor; Mart\'i Jan\'e-Ballar\'in; Pierre Nunn; Subhajit Pramanik; Antoine Pr\'evotat; Makoto Yokoo |
| Abstract: | In Shapley-Scarf housing markets, Ma (1994) shows that top trading cycles (TTC) is the unique mechanism satisfying individual rationality (IR), Pareto efficiency (PE), and strategy-proofness. We ask what other mechanisms become possible when strategy-proofness is replaced by a weaker condition called non-obvious manipulability (NOM), introduced by Troyan and Morrill (2020). We first show that this weaker condition does not help on its own: every IR and PE mechanism is already NOM. We therefore introduce a new condition: NOM with groups, under which each agent knows the preferences of the other members of her group, but not those of agents outside the group. This condition reduces to strategy-proofness when all agents belong to one group, and to standard NOM when every group is a singleton. Also, we introduce a participation condition called group rationality (GR), which requires that no group do worse than it would by trading only among its own members. We then define a class of mechanisms called TTC with super-groups, whose members satisfy GR, PE, and NOM with groups. The class includes mechanisms that differ from standard TTC, including mechanisms that are not strategy-proof. Furthermore, we show that every mechanism that satisfies GR, PE, and NOM with groups has the same best- and worst-case outcomes as every TTC with super-groups mechanism. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.15631 |
| By: | Baldwin, Elizabeth; Klemperer, Paul; Lock, Edwin |
| Abstract: | Product-mix auctions are sealed-bid mechanisms for trading multiple divisible or indivisible units of multiple differentiated goods. They implement competitive-equilibrium allocations when these exist, based on the bids that participants make in a simple geometric language. All concave substitutes (respectively, strong-substitutes) valuations can be uniquely represented, and no other valuations can be represented, by bids in the corresponding version of this language. This provides new characterisations of ordinary substitutes, and of strong substitutes, when goods are indivisible. We discuss implementation of the auctions, and extensions and variants of the language, e.g., allowing for budget constraints. |
| Keywords: | Walrasian equilibrium |
| JEL: | D44 E58 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19457 |
| By: | Saar Cohen; Nicholas Teh; Paul W. Goldberg; Michael J. Wooldridge |
| Abstract: | We study an online variant of discrete fair division under generalized assignment budget constraints. Goods arrive one at a time and must be assigned irrevocably to a feasible agent or to charity, which holds all unallocated goods, while fairness is evaluated only against budget-feasible subsets of every recipient's bundle. We first show that, without additional structure, no deterministic online algorithm can guarantee any fixed approximation to feasible envy-freeness, even in highly symmetric instances. We then identify bounded density spread as a structural condition that restores meaningful guarantees, obtaining approximation algorithms for arbitrary item sizes and showing that, under common valuations and sufficiently small goods, these guarantees can be strengthened to an optimal deterministic frontier. We further study resource augmentation, where the online algorithm is allowed slightly larger budgets than the fairness benchmark, and characterize the resulting improvement in the achievable guarantees. Finally, we develop a learning-augmented framework based on predicting joint value-size types, proving consistency under perfect predictions, robustness to prediction error, and showing that separate predictions of value and size marginals are insufficient to recover strong fairness guarantees. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.23310 |
| By: | Albrecht, James; Cai, Xiaoming; Gautier, Pieter; Vroman, Susan |
| Abstract: | This paper considers competitive search equilibrium in a market for a good whose quality differs across sellers. Each seller knows the quality of the good that he or she is offering for sale, but buyers cannot observe quality directly. We thus have a “market for lemons†with competitive search frictions. In contrast to Akerlof (1970), we prove the existence of a unique equilibrium, which is separating. Higher-quality sellers post higher prices, so price signals quality. The arrival rate of buyers is lower in submarkets with higher prices, but this is less costly for higher-quality sellers given their higher continuation values. For some parameter values, higher-quality sellers post the full-information price; for other values these sellers have to post a higher price to keep lower-quality sellers from mimicking them. In an extension, we show that if sellers compete with auctions, the reserve price can also act as a signal. |
| Keywords: | Competitive search; Signalling |
| JEL: | C78 D82 D83 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19467 |
| By: | Aleksei Chernulich; Nobuyuki Hanaki; Yuki Tamura |
| Abstract: | Obvious strategy-proofness makes truth-telling, in theory, an obvious choice. We experimentally study its role in the object-reallocation problem with single-peaked preferences. We compare two efficient and strategy-proof mechanisms, Top Trading Cycles and the Crawler, under static and gradual implementations. In our experiment, all four mechanisms generate the same outcome under truth-telling, but only the Gradual Crawler is obviously strategy-proof. The Gradual Crawler achieves significantly higher empirical efficiency than the other mechanisms. By contrast, the Gradual TTC does not outperform the Static TTC, suggesting that gradual implementation alone is not sufficient and that the Gradual Crawler benefits from its stop-or-continue procedure. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1318 |
| By: | Anh Nguyen; Teck Yong Tan |
| Abstract: | We study a monopolist facing a buyer whose valuation is determined by pre-trade investment. Before setting price, the seller observes a signal about the buyer's private investment cost (buyer profiling). Information that helps the seller extract surplus can also undermine the buyer's incentive to create it. We characterize the buyer-seller payoffs attainable across all possible profiling. On the Pareto frontier, if investment increases, hold-up risk always raises the payoff that the seller captures faster than the surplus that the investment creates. Protecting buyer welfare therefore requires discouraging investment, even though investment is socially efficient. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.19558 |
| By: | Hiroaki Odahara (Market Design Center, Graduate School of Economics, The University of Tokyo; Graduate School of Informatics and Engineering, The University of Electro-Communications) |
| Abstract: | This paper asks whether the payment side of an incentive-compatible mechanism can be repaired so that every realized settlement balances exactly while the allocation and all report-by-report comparisons under the maintained worst-case evaluation remain unchanged. Before reports, the designer commits to a menu of payment rules and a report-blind selection protocol. A pointwise preservation condition then carries over dominant-strategy incentives. Under a full-support common reference, a precisely known label law permits repair only if the original rule already balances, whereas frequency uncertainty about even one non-worst label makes every non-deficit rule repairable. Under the common residual-ambiguity benchmark, every preserving, exactly balanced finite menu at a positive-surplus state requires more transfer capacity as certified frequency information becomes tighter. In the canonical menu, fixing the transfer cap makes the best attainable balance deteriorate toward the original surplus as ambiguity vanishes. When only the possible labels are certified, two labels suffice. Suitably balanced partitions can also retain the original cap for nonnegative payments and preserve individual rationality under every realized rule. This last guarantee is impossible in positive-revenue Vickrey states when each agent's preserving distribution has full support. Frequency information therefore changes feasibility, liquidity, and realized participation in distinct ways. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.00517 |
| By: | Kim, Kyungmin; Kos, Nenad |
| Abstract: | The model considers a monopolist who optimally chooses the design and price of a product on the Hotelling line. We characterize the set of prices and consumer surplus that can arise in the model across all distributions of tastes. In a stark departure from the monopoly model without product design, the seller never offers a price below a certain threshold. Moreover, the maximal consumer surplus is strictly smaller than in the absence of product design. It is attained by a distribution that renders the seller indifferent over a set of design/price combinations. Notably, the distribution does not exhibit unit elasticity given any fixed design. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19630 |
| By: | Hiroaki Odahara (Market Design Center, Graduate School of Economics, The University of Tokyo; Graduate School of Informatics and Engineering, The University of Electro-Communications) |
| Abstract: | Scarce opportunities such as concert tickets and accelerator time may be contested by automated participants that can create accounts and sustain commitments beyond the reach of commitment-limited intended users. When account counts are untrusted, we study anonymous screening rules that ignore them, cap retained burdens, use only an account's commitment and strongest rival, and do not reassign after rejecting the leader. Within this class, we characterize the rule maximizing intended users' expected utility when they commit fully and a scalable entrant stays out. The optimum refunds and allocates at low congestion, retains and allocates at intermediate congestion, and retains while withholding allocation from an otherwise eligible leader when the strongest rival lies in the upper tail. Unlike a conventional reserve, which rejects a low leading bid, this rule treats an unusually strong rival as evidence of entrant imitation. A direct dual certificate proves class optimality; a benchmark shows that upper-tail holdback can raise intended-user surplus before it is necessary to support non-entry. The rule supports an equilibrium with full commitment and entrant non-entry. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.27817 |
| By: | Edoardo Gallo; Rebecca Heath; Jonathan Lusthaus; Federico Varese |
| Abstract: | Market design research in economics naturally focusses on how to improve market efficiency. Our objective here is exactly the opposite - how to design interventions that make a market less efficient. Our research is inspired by the growth of illicit markets online where reducing their efficiency may reduce societal harm. Using a web-based experiment, we find that a partial disruption to delivery is an effective method to decrease market efficiency. The decrease is borne by sellers who sell fewer goods and have lower earnings. A consequence of a disruption to delivery, however, is an increase in market concentration because it facilitates the emergence of a dominant seller. In contrast, we find that attacks on seller ratings are ineffective at reducing market efficiency. This study paves the way for evidence-based, causally driven investigations to aid policies to disrupt cybercrime and other illicit markets. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.24389 |
| By: | Teck Yong Tan |
| Abstract: | A monopolist sells a product line whose variants are horizontally differentiated from the buyers' perspective but ordered by production cost. Buyers privately know their ideal product, and willingness to pay may be correlated with horizontal need. The seller screens buyers through product mismatch, and what she must screen determines whether mismatch creates or reduces information rent. When buyers differ only in horizontal need, mismatch creates rent: the seller induces less mismatch, assigning served buyers products closer to their ideals than under the first best. When willingness to pay is correlated with horizontal need, mismatch instead reduces rent: the seller induces more mismatch, sells the basic product to buyers whose efficient products are advanced variants while excluding buyers better matched to it, and stronger horizontal differentiation can expand coverage and raise profit. Because mismatch is type-specific, optimal allocations are determined by individual rationality rather than by incentive compatibility alone. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.21765 |
| By: | Igor Cialenco; Michael Ludkovski; Gael Dimitri Tekam Fongouo |
| Abstract: | We introduce a pro-rata rationing mechanism for resolving supply-demand imbalances in groundwater markets, extending the price-formation model of Cialenco and Ludkovski (2025). We show that under the pro-rata distribution, every price is a Nash equilibrium, thereby pro-rata approach provides a rationing device whenever supply and demand fail to match. By the very nature of the pro-rata mechanism, the resolution of supply-demand imbalances is unique, and the proportional rationing approach is fair. First, we consider markets with exogenous restrictions on the amounts each agent may buy and/or sell, deriving closed-form first-best consumption and characterizing how one-sided caps monotonically shift the Pareto price, while two-sided caps have an ambiguous effect. These results give the market-maker (or regulator) a tool for studying the impact of trading restrictions on price formation. Second, we study a leader-follower setting in which a regulator (the leader) sets the trading price by optimizing first its own objective, such as balancing social welfare against a target traded volume or a fairness objective such as Gini-type disparity measure across farmers' profitability, while farmers (the `followers') respond via pro-rata trading. We further compare the proposed pro-rata approach to a family of asymmetric rationing schemes (seniority-based, excess-based, uniform, and mixed pro-rata rules) that trade off proportional fairness against protections for small or senior water-rights holders. Throughout, we illustrate the theoretical results with a numerical case study calibrated to a stylized four-farmer groundwater market. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.00917 |
| By: | Chupeng Xie |
| Abstract: | Same fairness rule, different posterior, no trade. We study personalized pricing when seller and buyer principals delegate to agents that receive different value signals and execute machine-enforced mandates. Equal nominal surplus rules can be incompatible because each is applied to its agent's posterior. In one common environment, we solve nested pricing, inspection, mandate-selection, and repeated-relationship subgames. Signal attestation and execution attestation have different effects: evidence of a high seller signal can legitimate a high price, whereas evidence of a restrained rule can prevent unauthorized extraction. Verification can recover trade and soften both principals' policies only when it covers the disputed proposition. In repeated transactions, attributable offers above a buyer's reference cap depreciate relationship capital, producing a state-dependent Markov policy and a reference-respecting region. Verification is privately underprovided when the seller does not internalize avoided buyer inspection and relationship spillovers, but can be overprovided when it facilitates extraction. The model links AI measurement, algorithmic extraction, and verifiable restraint without treating trust as software emotion or verified execution as proof of true value. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.16343 |
| By: | Muzi Chen; Difang Huang; Shouyang Wang; Xinghan Xia |
| Abstract: | Firms covered by emissions trading systems need forecasts not only to value allowances, but also to decide when to buy them. This paper asks whether European Union Allowance (EUA) prices contain short-horizon predictability that survives a forecast-origin information design and improves simulated compliance procurement. Using daily data from 2019 to 2025, we produce direct forecasts for one to five trading days ahead. All predictors are observable at the forecast origin, and calibration and model-selection rules are fixed before the final holdout. The released forecast has the lowest point-estimate RMSE at every horizon among fourteen benchmarks, with the strongest loss-difference evidence at horizons three and four. Relative to a random walk, out-of-sample R^2 rises from 1.2% at one day to 15.5% at five days. We then use the forecast path in a constrained procurement problem with execution costs, market impact, capacity limits, and tail risk; sensitivity exercises add demand uncertainty. For a fixed 100, 000-EUA order, optimized schedules lower average realized costs by 8.5 to 38.5 basis points relative to uniform execution across horizons h=2 to h=5. The gains come from reallocating purchases within a fixed window, not from reliable next-day directional timing. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.23426 |
| By: | Marra, Marleen |
| Abstract: | Globally, scarce airport capacity is rationed by awarding time-specific slots free of charge to airlines, incentivising retention regardless of efficiency. I quantify the efficiency losses and welfare effects of market-based reallocation, defining slot values as equilibrium profits from a structural flight-level model. Reallocating 6% of weekly slot pairs in two airports increases consumer surplus by at least 3.2% through substitution of under-utilised slots for long-haul flights at suitable hours; fare effects are negligible. Larger operations yield cost and demand advantages and reduce outside hubs as substitutes. This reinforces concentration, but unlike in standard markets, the resulting network convenience benefits consumers at the margin. |
| Keywords: | Airline industry; Structural estimation; Airports; Auctions; Demand estimation |
| JEL: | L13 L93 D44 C57 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19442 |
| By: | Gambato, Jacopo; Peitz, Martin |
| Abstract: | We analyze consumers' voluntary information disclosure in a platform setting. For given consumer participation, the platform and sellers tend to prefer limited disclosure of consumer valuations, in contrast to consumers. With endogenous consumer participation, seller and platform incentives may be misaligned, and sellers may be better off when consumers can disclose their valuations. A regulator acting in the best interest of consumers and/or sellers may want to intervene and force the platform to employ a disclosure technology that enables consumers to voluntarily disclose information from a richer message space. |
| Keywords: | E-commerce |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19359 |