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on Economic Design |
| By: | Olivier De Groote; Anais Fabre; Margaux Luflade; Arnaud Maurel |
| Abstract: | The optimal functioning of centralized allocation systems is undermined by the presence of institutions operating off-platform - a feature common to virtually all real-world implementations. These off-platform options generate justified envy, as students may reject their centralized assignment in favor of an outside offer, leaving vacant seats in programs that others would have preferred to their current match. We examine whether sequential assignment procedures can mitigate this inefficiency: they allow students to delay their enrollment decision to potentially receive a better offer later, at the cost of waiting before knowing their final admission outcome. To quantify this trade-off, we estimate a dynamic model of application and acceptance decisions using rich administrative data from the French college admission system, which include rank-ordered lists and waiting decisions. We find that waiting costs are large. Yet, by improving students’ assignment outcomes relative to a standard single-round system, the sequential mechanism decreases the share of students who leave the higher education system without a degree by 5.4% and leads to large welfare gains. |
| Keywords: | higher education, centralized admission, sequential assignment |
| JEL: | I00 I2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12042 |
| By: | Xiaotie Deng; Yanru Guan; Ningyuan Li; Zihe Wang; Jie Zhang |
| Abstract: | This paper studies mechanism design for revenue maximization in a distribution-reporting setting, where the auctioneer does not know the buyers' true value distributions. Instead, each buyer reports and commits to a bid distribution in the ex-ante stage, which the auctioneer uses as input to the mechanism. Buyers strategically decide the reported distributions to maximize ex-ante utility, potentially deviating from their value distributions. As shown in previous work, classical prior-dependent mechanisms such as the Myerson auction fail to elicit truthful value distributions at the ex-ante stage, despite satisfying Bayesian incentive compatibility at the interim stage. We study the design of ex-ante incentive compatible mechanisms, and aim to maximize revenue in a prior-independent approximation framework. We introduce a family of threshold-augmented mechanisms, which ensures ex-ante incentive compatibility while boosting revenue through ex-ante thresholds. Based on these mechanisms, we construct the Peer-Max Mechanism, which achieves an either-or approximation guarantee for general non-identical distributions. Specifically, for any value distributions, its expected revenue either achieves a constant fraction of the optimal social welfare, or surpasses the second-price revenue by a constant fraction, where the constants depend on the number of buyers and a tunable parameter. We also provide an upper bound on the revenue achievable by any ex-ante incentive compatible mechanism, matching our lower bound up to a constant factor. Finally, we extend our approach to a setting where multiple units of identical items are sold to buyers with multi-unit demands. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.04030 |
| By: | Yifan Huang; Dong Hao; Zhiyi Fan; Yuhang Guo; Bin Li |
| Abstract: | Reserve prices are widely used in practice. The problem of designing revenue-optimal auctions based on reserve price has drawn much attention in the auction design community. Although they have been extensively studied, most developments rely on the significant assumption that the target audience of the sale is directly reachable by the auctioneer, while a large portion of bidders in the economic network unaware of the sale are omitted. This work follows the diffusion auction design, which aims to extend the target audience of optimal auction theory to all entities in economic networks. We investigate the design of simple and provably near-optimal network auctions via reserve price. Using Bayesian approximation analysis, we provide a simple and explicit form of the reserve price function tailored to the most representative network auction. We aim to balance setting a sufficiently high reserve price to induce high revenue in a successful sale, and attracting more buyers from the network to increase the probability of a successful sale. This reserve price function preserves incentive compatibility for network auctions, allowing the seller to extract additional revenue beyond that achieved by the Myerson optimal auction. Specifically, if the seller has $\rho$ direct neighbours in a network of size $n$, this reserve price guarantees a $1-{1 \over \rho}$ approximation to the theoretical upper bound, i.e., the maximum possible revenue from any network of size $n$. This result holds for any size and any structure of the networked market. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.14470 |
| By: | Prummer, Anja; Nava, Francesco |
| Abstract: | We study a principal who allocates a good to agents with private, independently distributed values through an optimal mechanism. The principal can strategically shape these value distributions by modifying the good's features, which affect agents' valuations. Our analysis reveals that optimal designs are frequently divisive-creating goods that appeal strongly to specific agents or agent types while being less valued by others. These divisive designs reduce information rents and increase total surplus, at the expense of competition. Even when total surplus is constrained, some divisiveness in designs remains optimal. |
| Keywords: | Value Design, Mechanism Design, Differentiation |
| JEL: | D82 D46 L15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:323229 |
| By: | Bloch, Francis (Universite Paris 1 and Paris School of Economics); Dziubinsk, Marcin (Institute of Informatics, University of Warsaw); Dutta, Bhaskar (University of Warwick and Ashoka University) |
| Abstract: | A planner wants to select one agent out of n agents on the basis of a binary characteristic that is commonly known to all agents but is not observed by the planner. Any pair of agents can either be friends or enemies or impartials of each other. An individual's most preferred outcome is that she be selected. If she is not selected, then she would prefer that a friend be selected, and if neither she herself or a friend is selected, then she would prefer that an impartial agent be selected. Finally, her least preferred outcome is that an enemy be selected. The planner wants to design a dominant strategy incentive compatible mechanism in order to be able choose a desirable agent. We derive sufficient conditions for existence of efficient and DSIC mechanisms when the planner knows the bilateral relationships between agents. We also show that if the planner does not know the network these relationships, then there is no efficient and DSIC mechanism and we compare the relative efficiency of two second-best DSIC mechanisms. Finally, we obtain sharp characterization results when the network of friends and enemies satisfies structural balance. |
| Keywords: | Peer selection ; Network, Mechanism design without money ; Dominant strategy incentive compatibility |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1571 |
| By: | Oğuzhan Çelebi; Joel P. Flynn |
| Abstract: | How should authorities that care about match quality and diversity allocate resources in the face of uncertainty? We introduce adaptive priority mechanisms (APM) that prioritize agents based on their scores and characteristics. We show that APM uniquely implement the ex post optimal allocation. The ubiquitous priority and quota mechanisms are optimal if and only if the authority is risk-neutral or extremely risk-averse over diversity, respectively. Deferred Acceptance implements the unique stable matching when all authorities use the optimal APM. We provide a practical roadmap for implementing APM as a market-design solution and illustrate this using Chicago Public Schools data. |
| JEL: | C78 D47 D61 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34035 |
| By: | Andrea Attar; Eloisa Campioni; Thomas Mariotti; Alessandro Pavan |
| Abstract: | We study the design of market information in competing-mechanism games. We identify a new dimension, private disclosures, whereby the principals asymmetrically inform the agents of how their mechanisms operate. We show that private disclosures have two important effects. First, they can raise a principal's payoff guarantee against her competitors' threats. Second, they can support equilibrium outcomes and payoffs that cannot be supported with standard mechanisms. These results call for a novel approach to competing mechanisms, which we develop to identify a canonical game and a canonical class of equilibria, thereby establishing a new revelation principle for this class of environments. |
| Keywords: | incomplete information, competing mechanisms, private disclosures, revelation principle |
| JEL: | D82 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11991 |
| By: | Satoshi Nakada; Shmuel Nitzan; Takashi Ui |
| Abstract: | This paper proposes normative criteria for voting rules under uncertainty about individual preferences. The criteria emphasize the importance of responsiveness, i.e., the probability that the social outcome coincides with the realized individual preferences. Given a convex set of probability distributions of preferences, denoted by $P$, a voting rule is said to be $P$-robust if, for each probability distribution in $P$, at least one individual's responsiveness exceeds one-half. Our main result establishes that a voting rule is $P$-robust if and only if there exists a nonnegative weight vector such that the weighted average of individual responsiveness is strictly greater than one-half under every extreme point of $P$. In particular, if the set $P$ includes all degenerate distributions, a $P$-robust rule is a weighted majority rule without ties. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.22655 |
| By: | Christoph Carnehl; Anton Sobolev; Konrad Stahl; André Stenzel; Konrad O. Stahl |
| Abstract: | We study information design in a vertically differentiated market. Two firms offer products of ex-ante unknown qualities. A third party designs a system to publicly disclose information. More precise information guides consumers toward their preferred product but increases expected product differentiation, allowing firms to raise prices. Full disclosure of the product ranking alone suffices to maximize industry profits. Consumer surplus is maximized, however, whenever no information about the product ranking is disclosed, as the benefit of competitive pricing always dominates the loss from suboptimal choices. The provision of public information on product quality becomes questionable. |
| Keywords: | information design, vertical product differentiation, quality rankings, competition |
| JEL: | D43 D82 L13 L15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12038 |
| By: | Zach Y. Brown; Alexander MacKay |
| Abstract: | We examine a model in which one firm uses a pricing algorithm that enables faster pricing and multi-period commitment. We characterize a coercive equilibrium in which the algorithmic firm maximizes its profits subject to the incentive compatibility constraint of its rival. By adopting an algorithm that enables faster pricing and (imperfect) commitment, a firm can unilaterally induce substantially higher equilibrium prices even when its rival maximizes short-run profits and cannot collude. The algorithmic firm can earn profits that exceed its share of collusive profits, and coercive equilibrium outcomes can be worse for consumers than collusive outcomes. In extensions, we incorporate simple learning by the rival, and we explore the implications for platform design. |
| JEL: | D43 L13 L40 L81 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34070 |
| By: | Justus Preusser |
| Abstract: | This paper studies a market in which a patient long-lived seller offers prices to short-lived buyers. A hidden state determines whether the buyer's common value exceeds the seller's reservation value, and all players only have noisy signals. If the seller has commitment power, the seller waits for a buyer with the most favorable signal to arrive, and else exits the market. Using techniques for monotone decision problems, this waiting strategy is shown to be optimal for learning whether trade is efficient. Due to the interplay between the seller's and the buyers' information, the seller's decision to exit may be non-monotonic in the seller's information, and prices may be non-monotonic over time. Without commitment power, there is an equilibrium in which the seller also waits for a buyer with the most favorable signal, but the seller exits at inefficient times. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.06132 |