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on Economic Design |
| By: | Andreas Kleiner |
| Abstract: | We study a model of delegation in which a principal takes a multidimensional action and an agent has private information about a multidimensional state. We provide necessary and sufficient conditions for an arbitrary mechanism to maximize the principal’s expected payoff. A key step shows that a function is the indirect utility of an incentive-compatible mechanism if and only if it is convex and lies below the agent’s full-discretion payoff. We apply our optimality conditions to convex delegation sets and characterize when a single budget optimally links decisions. Linking can preserve discretion even when separate dele gation would eliminate it. Optimal linking can also require a nonconvex delegation set, even with uniformly distributed types. If the principal cares little about aligned decisions, every optimal mechanism randomizes: risk in an aligned decision provides incentives in the biased ones at little cost to her. |
| Keywords: | delegation; mechanism design without transfers |
| JEL: | D82 D86 C61 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_784 |
| By: | Lijian Lu; Ce Zhang |
| Abstract: | When auction bidders misperceive their rivals, a seller can change not only the amount of information rent but also the states in which it is delivered. We ask when this payment-design opportunity survives a finite bidding interface, nonnegative-payment restrictions, and comparison with conventional auctions under the same beliefs. We formulate payment design as a linear program in nonnegative bidder rents. A single state can safely carry a report's rent when it is both cheapest for its intended type and least attractive to potential mimics. We characterize this alignment, bound the cost of a restricted payment architecture when alignment is imperfect, and use shadow prices when the rankings conflict. Own-type projection yields a unique optimal expected-payment rule for a fixed allocation. Contiguous bid bands implement truthful reporting at every value, but create pooling losses and within-band surplus. Under a separate smooth-belief model, feasible truthful rules and revenue upper bounds support comparisons with a first-price equilibrium under the same beliefs. A calibration using 1, 000 eBay proof-set auction records illustrates a partition-dependent reversal: first price dominates all exactly truthful, no-subsidy rules on ten equal-probability bands in one scenario, while a richer contingent rule on ten equal-dollar bands outperforms it. An operator should choose interface resolution, payment dependence, and integrity tolerances jointly. Validate the probabilities that support incentives, compare formats under the same beliefs, and distinguish redesign from deployment. Any receipt advantage must cover implementation costs before it can imply a profit advantage. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.05650 |
| By: | Joshua S. Gans |
| Abstract: | An advertiser in a second-price auction sees what it paid, not the rival bids that supposedly set the price. Akbarpour and Li (2020) show that an auctioneer can therefore charge a winner up to its bid undetected. The Federal Trade Commission alleges that Amazon’s advertising auctions, described as second-price, used soft reserves that did this. We ask whether repeated bidding exposes such charges and what adjustment does to welfare. If each charge equal to the bid is flagged, the soft reserve is exposed quickly, however much the advertiser trusted the description. If reports show only win rates and expected charges, it is indistinguishable from a second-price auction at any fixed bid: an advertiser that trusts the description and bids its value never learns, and one that doubts it but bids for current profit needs a number of auctions at least inversely proportional to its doubt before it considers a soft reserve more likely than not. The second-price description and aggregate reporting are complements. Among informed, symmetric advertisers, the soft reserve raises no more revenue than a second-price auction, and when only some advertisers adjust, placements are misallocated. Disclosure returns surplus to advertisers; removing the surcharge also restores efficiency. |
| JEL: | D44 D83 L86 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35841 |
| By: | Guoqiang Tian |
| Abstract: | This paper develops a general framework for dynamic mechanism and information design with AI agents, encompassing optimal contracting and integrating evolving hidden information and hidden action with partial verification, technological authorization, and multi-agent interaction. It nests conventional dynamic screening, hidden-action contracting, and conditional dynamic information design, while allowing reporting, action, and information-use decisions to interact through a common continuation mechanism. We establish a dynamic revelation principle and a recursive characterization of implementability in which truthful reporting and post-report obedience are jointly determined through continuation incentives. In quasilinear optimal-contracting environments, dynamic envelope and integral-monotonicity methods yield a verification-adjusted dynamic virtual-surplus representation and identify three distinct margins: dynamic information rents, verification rents, and the implementation cost of hidden action. These margins generate a branched hierarchy separating conventional dynamic screening, hidden-action contracting, and their joint problem. We also study the joint design of monitoring, information use, and incentives: more informative monitoring capacity expands the designer's opportunity set, but full disclosure need not be optimal, and information use can itself alter hidden-action incentives. With multiple agents, correlated information, peer discipline, coupled incentives, joint feasibility, and continuation opportunities create additional strategic interactions. Although motivated by AI-agent environments, the framework applies more broadly to dynamic agency settings with similar economic features. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.11177 |
| By: | Yuta Nakamura; Noriaki Okamoto |
| Abstract: | A second-price auction must determine its price but need not learn how far losing values lie below it. We show that protecting this information from the seller conflicts with auction credibility. In deterministic protocols with private communication, lower-tail privacy forces the first informative question to reveal whether a bidder has the highest possible value. The seller can then manipulate the winner's payment without any bidder detecting the deviation, increasing revenue at some valuation profiles and never reducing it. A descending protocol conceals losing values below the price but permits manipulation; with mandatory sale, a credible ascending protocol reveals them. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.12204 |
| By: | Bettina Klaus; Yang Chen; Anh Tri\^eu |
| Abstract: | We study Balbuzanov and Kotowski's (2019) exclusion core for object allocation problems with complex endowments. We focus on mixed-ownership object allocation problems in which each object is either individually owned by one agent or publicly owned by all agents. Given a priority order over agents, an endowment structure, an initial allocation, and agents' preferences, we construct serial top trading cycles (STTC) graphs and define the associated STTC algorithm. The algorithm is the central tool for our analysis of exclusion-core-stable allocations. First, we show that, among domains defined by restrictions on endowment structures, the mixed-ownership domain is the largest on which the STTC algorithms characterize the exclusion core. Second, we provide a simple test for exclusion core stability: an allocation is exclusion core stable if and only if it is a fixed point of the STTC algorithm initialized at that allocation, independently of the priority order. Third, we show that the exclusion core is a von Neumann--Morgenstern (1944) stable set with respect to exclusion-domination. Finally, we study a dynamic exclusion-blocking process and show that, from any allocation, there exists a self-contained exclusion-blocking path to the exclusion core. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.04015 |
| By: | Varun Bansal; Sinan Ertemel; Rajnish Kumar; Anh Pham |
| Abstract: | Centralized admissions platforms grant priority based on self-reported facts such as residence, sibling status, or family income, and a false claim can cost another applicant her seat. Verifying every claim before matching is expensive, yet checking only admitted applicants afterward is unsafe: a false claim by an applicant who ends up unmatched may already have triggered a chain of rejections. We show how a platform can check far fewer claims without changing any outcome. A claim matters only if it can move its applicant across a school's admission cutoff, and we give an exact, easily computed test for when this happens. Checking only such claims, and only when they could change a school's tentative choice, reproduces every application, rejection, and assignment of deferred acceptance under full verification. When claims are truthful, checking the highest claimed priority first minimizes checks among such policies at each school decision, and the number of checks never exceeds the school's capacity. Truthful reporting of preferences and eligibility is a weakly dominant strategy, so incentives deliver the conditions under which this audit order is optimal. In simulated markets, the policy cuts verification by 76 percent relative to checking every claim upfront and by 36 percent relative to checking each claim when it first reaches a school. The design principle is to verify decisions, not files. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.10131 |
| By: | Dihan Zou |
| Abstract: | We study monopoly regulation when capacity is contractible but subsequent output is not. A firm privately observes its production cost before installing costly capacity and then choosing output, while the regulator cannot use transfers. We provide sufficient conditions under which a single capacity floor implements an optimal mechanism with full participation. The floor raises output by changing investment while leaving utilization to the firm after installation costs are sunk. Under additional conditions, the allocation has three regions: laissez-faire, full utilization of the floor, and underutilization. High-cost types knowingly install capacity they will not fully use, yet produce more than under laissez-faire. This physical waste is a necessary evil of optimal regulation that expands service. We also show that underutilization can persist in optimal regulation with capacity-contingent subsidies or a common entry fee. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.07189 |
| By: | Endre Cs\'oka; M\'at\'e Viczi\'an |
| Abstract: | The Guaranteed Utility Mechanism (GUM) was introduced to implement efficiency in Guaranteed Utility Equilibrium (GUE) in dynamic social choice problems. We show that this mechanism also has a previously unknown connection to risk minimization. Fixing an efficient decision policy, we study variance-minimizing budget-balanced transfer rules in the class of GUE-implementations of truthful reporting. A symmetrized version of GUM (sym-GUM) minimizes the sum of the agents' utility variances under truthful reporting when there is no public state. When a public state is present, a slight modification of this rule yields the minimizer for the same objective. Sym-GUM, however, does not minimize transfer risk. The minimizer for that problem is instead the symmetrized version of a closely related GUM-like transfer rule. In both problems, the minimizing truthful total transfers are unique up to agent-specific constants summing to zero and events of probability zero. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.10456 |
| By: | Federico Fioravanti; Zoi Terzopoulou |
| Abstract: | When voters evaluate alternatives sequentially, an anchoring bias makes their ballots depend on the order in which alternatives are presented. For approval ballots, no non-constant voting rule is robust to this dependence. We show that ranked ballots change the picture sharply: a rank-based rule is robust to the presentation order if and only if it is tops-only. Robustness to anchoring is thus available, but only at the price of ignoring everything a voter reports beyond her favourite alternative. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.10316 |
| By: | Bhavook Bhardwaj; Marco LiCalzi |
| Abstract: | We consider a model of collective choice where for each menu there is an agent who is accountable for the choice made. Specifically, we assume that two agents (individuals or selves) allocate choice tasks over different menus using an ownership rule: the owner of the decision over a menu picks what maximizes his own preference and is accountable for it. We characterize three distinct ownership rules under different (nested) choice environments. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.06428 |
| By: | Agustin G. Bonifacio |
| Abstract: | We study social welfare rules with strict individual and social preferences. A preference profile is dictatorial for a rule if the social preference coincides with some agent's preference and no agent with a different preference can change the social preference unilaterally. We establish that (i) a rule is dictatorial if and only if all of its profiles are dictatorial; and (ii) if a rule satisfies unanimity and independence (of irrelevant alternatives), then all its profiles must be dictatorial. These results constitute a proof of Arrow's Impossibility Theorem. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.11851 |
| By: | Jason Shachat (Center for Intelligence Economic Science, Southwestern University of Finance and Economics and Chapman University); J. Todd Swarthout (Department of Economics, Georgia State University); Yun Wang (School of Economics, Renmin University of China) |
| Abstract: | We examine how competitive allocation of scarce participation rights shapes behavior in a Berg-style trust game. Trustor and trustee roles are allocated through multi-unit uniform-price English auctions with varying scarcity, alongside a matched-fee random-assignment control treatment. Positive transfers and returns persist, but behavior lies near the low-trust, low-reciprocity end of comparable benchmarks. Tighter scarcity accelerates the decline in trustor transfers, while trustee returns show no monotonic pattern. Scarcity strongly raises auction prices without comparably raising participants’ gross trust-game earnings, thereby lowering net earnings. Exit bids adjust to past game profitability, indicating adaptive learning about the value of participation. |
| Keywords: | Trust Game; trust game; Scarcity; Market Allocation; Participation Rights |
| JEL: | C91 D82 D83 D84 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:26-12 |
| By: | Francis Annan; Collin B. Raymond |
| Abstract: | We study how firms choose among incentive contracts and how accurately managers predict their effects. Using a survey of managerial beliefs and a large-scale field experiment, we randomly assign agents at the market level to several widely used, expenditure-equivalent incentive schemes. In the field, the best-performing contract increases agent output and firm revenue by over 20% relative to the status quo, despite being ranked lower by managers, whereas the worst-performing contract performs as predicted. Managers correctly identify underperforming contracts but systematically underestimate top- performing ones. We document the sources of performance di!erences—labor supply responses rather than selection or pricing and the determinants of managerial predictability: contract complexity and managerial hierarchy. Our results highlight the importance of contract design for firm performance and reveal systematic limits to managerial cognition in shaping incentives. |
| JEL: | D86 D91 G23 L21 O12 O16 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35788 |
| By: | Benjamin Marsh |
| Abstract: | A single auction can have both a shill-proof equilibrium and a non-shill-proof equilibrium in the model of Komo, Kominers, and Roughgarden. We give an explicit single item example with three bidder positions, publicly observed actions, positive winning prices, and a strictly regular i.i.d.\ value distribution. Real bidders have strict incentives in both equilibria. An initial public action conveys information about whether the final position is real. The resulting belief changes the middle bidder's response and reverses the first shill's strict preference between two actions. We verify both equilibria and compute their expected revenues. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.06262 |
| By: | Pranay Anchuri; Edward W. Felten; Akaki Mamageishvili |
| Abstract: | Flashblocks divide a block's priority gas auction into shorter sequential auctions that commit transaction order before the block is complete. We ask how this auction cadence affects bidding and competition among automated arbitrageurs, or searchers. In July 2025 Base replaced a single 2 s auction with ten 200 ms auctions. We use this change to estimate the searcher response from on-chain data alone. On an address-day panel of 3, 032 searchers and 8, 053 activity-matched controls, a difference-in-differences design estimates a 0.187 gwei fall in the effective priority fee (59% of the searcher pre-period mean). The share of searcher priority-fee value paid in the first tenth of block gas falls from 0.98 to 0.28. This fee compression is the identified effect. The revert-rate response is not (causally) identified and is reported descriptively. At the level of a single opportunity, the winning fee splits into an approximately invariant floor and a competitive premium. The premium scales about linearly with auction duration at high contention and less steeply at low contention. A first-price auction model with uncertain arrival and partial payments by losing searchers accounts for this pattern. We match attempts to the pool they contest. A higher-fee transaction reverts behind a lower-fee winner that landed earlier in 1.9 to 2.7% of contested opportunities by value, an upper bound. Latency therefore decides part of the ordering. A micro-auction model projects diminishing returns from shortening the window below 200 ms, as bids approach a nonzero floor. Rollups such as Arbitrum One now make auction cadence a governance tunable parameter, so these estimates inform how it is set. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.03922 |
| By: | Ujjwal Kumar |
| Abstract: | A planner wants to elicit partial information about a subject's preference relation. Preferences are grouped into ``types" relevant to the planner's purpose. Can the planner identify the subject's type through menu-choice data or experiment, without distinguishing preferences within the same type? We provide a complete answer by characterizing identifiable type spaces. The characterization uses a novel geometric condition, called face consistency, which governs distinctions within and across square and hexagonal faces of the permutohedron. For every identifiable type space, we explicitly construct the unique irreducible identifying experiment from its boundary. This experiment is optimal among all identifying experiments under any cost criterion for which adding menus cannot reduce cost. Using the equivalence between identifiability and elicitation with acts, as shown in Azrieli et al. (2021), we study symmetric policies requesting unranked shortlists that contain only acceptable products, include every product preferred to a selected one, and are nonempty whenever an acceptable product exists. Only two such policies are elicitable with acts: requesting the favorite acceptable product or the entire acceptable set. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.10207 |
| By: | Galit Ashkenazi-Golan; Edward Plumb; Clemens Possnig; Yufei Zhang |
| Abstract: | We study the strategic design of learning algorithms in a canonical continuous-time pricing game. We introduce a meta-game in which firms select learning rates for a gradient dynamic, evaluating payoffs as the discounted sum of profits accrued along the entire learning path. We uncover a fundamental dichotomy driven by stage-game incentives: if the stage game exhibits strategic substitutability, firms unambiguously prefer the fastest possible algorithms to rapidly exploit a gradually adjusting opponent. Under strategic complementarity, however, an excessively fast algorithm accelerates the rival's competitive response, destroying transitional profit margins. Even though the competitive price is a strictly dominant action in the underlying stage game, we prove that firms optimally design sluggish algorithms, extracting surplus during a prolonged convergence to the competitive equilibrium. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.11675 |
| By: | David Argente |
| Abstract: | Complementarities can have important welfare consequences, but quantifying these effects would seem to require identifying and valuing the underlying mechanisms separately. This paper shows that this need not be the case. I provide necessary and sufficient conditions under which baseline subsidized activity and the direct and total responses to a subsidy determine aggregate willingness to pay. A sufficient condition for valuing the equilibrium adjustment is that it has the same effect on utility as an additional subsidy common to all agents and relevant actions. The formula is easy to apply to existing estimates and guides the design of new experiments. |
| JEL: | D6 H2 H4 O2 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35843 |