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on Economic Design |
| By: | Doval, Laura; Smolin, Alex |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131477 |
| By: | Tomoya Kazumura; Debasis Mishra; Shigehiro Serizawa |
| Abstract: | We study a model of auction design where a seller is selling a set of objects to a set of agents who can be assigned no more than one object. Each agent's preference over (object, payment) pair need not be quasilinear. If the domain contains all classical preferences, we show that there is a unique mechanism, the minimum Walrasian equilibrium price (MWEP) mechanism, which is strategy-proof, individually rational, and satisfies equal treatment of equals, no-wastage (every object is allocated to some agent), and no-subsidy (no agent is subsidized). This provides an equity-based characterization of the MEWP mechanism, and complements the efficiency-based characterization of the MWEP mechanism known in the literature. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.16211 |
| By: | Pasha Andreyanov; Ilia Krasikov; Alex Suzdaltsev |
| Abstract: | We study independent private values auction environments in which the auctioneer's revenue depends nonlinearly on bidders' interim winning probabilities. Our framework accommodates heterogeneity among bidders and places no ad hoc constraints on the mechanisms available to the auctioneer. Within this general setting, we show that feasibility of interim winning probabilities can be tested along a unidimensional curve -- the principal curve -- and use this insight to explicitly characterize the extreme points of the feasible set. We then combine our results on feasibility and extremality to solve for the optimal auction under a natural regularity condition. We show that the optimal mechanism allocates the good based on principal virtual values, which extend Myerson's virtual values to nonlinear settings and are constructed to equalize bidders' marginal revenue along the principal curve. We apply our approach to the classical linear model, settings with endogenous valuations due to ex ante investments, and settings with non-expected utility preferences, where previous results were largely limited either to symmetric environments with symmetric allocations or to two-bidder environments. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.17812 |
| By: | Josephine Auer (JDepartment of Economics, MIT, Cambridge); Lana Friesen (School of Economics, University of Queensland); Ian A. MacKenzie (School of Economics, University of Queensland) |
| Abstract: | This article investigates the existence of bid caps in budget-constrained procurement auctions. We analyze the design and (non)disclosure of a bid cap and how this impacts aggregate market outcomes and strategic bidding behavior in a budget-constrained envi-ronment. We use a laboratory experiment to analyze two potential bid cap designs—a disclosed versus undisclosed bid cap—as well as comparing both to a baseline case without a bid cap. We find adoption of either a disclosed or non-disclosed cap significantly im-proves cost effectiveness. A non-disclosed cap, however, significantly increases the informa-tion rent to participants and, consequently, performs relatively worse than a disclosed cap. We consider two common but distinct auction formats (discriminatory ‘pay-your-bid’ and a uniform price) and show that a discriminatory auction improves cost effectiveness com-pared to a uniform-price auction when the cap is disclosed. Our findings have important policy implications that demonstrate the benefits of implementing bid caps for improving budgetary cost-effectiveness while highlighting potential tradeoffs between efficiency and worsening information rents. |
| Keywords: | auction, experiment, bid cap, procurement |
| JEL: | C91 C92 D44 H57 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:qld:uq2004:672 |
| By: | Tymofiy Mylovanov; Thomas Tröger |
| Abstract: | A mechanism proposal by a privately informed principal is a signal. The agents’ belief updating endogenizes their incentives in the mechanism, implying that such design problems cannot be solved via optimizing subject to incentive constraints. We propose a solution, neo-optimum, that can be interpreted as principal-preferred perfect Bayesian equilibrium. Its neologism-based definition allows an intuitive computation, as we demonstrate in several applications. Any Myerson neutral optimum is a neo-optimum, implying that a neooptimum exists generally. Neo-optimum unifies the other known solution approaches in the informed-principal literature. |
| Keywords: | informed principal, mechanism design, signaling, neologism |
| JEL: | D47 D82 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_643_v2 |
| By: | Brian Roberson (Purdue University, Department of Economics and Economic Science Institute, Chapman University) |
| Abstract: | We study incentive design when multiple principals simultaneously design mechanisms for their respective teams in environments with strategic spillovers. In this environment, each principal’s set of incentive-compatible mechanisms—those that satisfy their own agents’ incentive compatibility constraints— depends on the mechanisms offered by the other teams. Following a classic example by Myerson (1982), such games may lack equilibrium due to discontinuities in the correspondence of incentive-compatible mechanisms. We establish general conditions for equilibrium existence by introducing a novel approach that involves tracking both the outcome distributions along the truthful-obedient path and the sets of outcome distributions achievable through unilateral deviations, thereby providing a foundation for analyzing a wide range of multi-principal mechanism design with team production and agency problems. |
| Keywords: | Mechanism Design, Principal-Agent Problems, Equilibrium Existence, Generalized Games, Multiple Principals, Stochastic Production, Team Production |
| JEL: | C72 D82 D86 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:26-02 |
| By: | Alex L. Brown; Ethan Park; Rodrigo A. Velez |
| Abstract: | We test whether lying aversion can steer equilibrium selection in mechanism design. In a principal-worker environment, the direct mechanism admits two dominant-strategy equilibria: the designer's target and a worker-optimal outcome. We show this limitation persists for all robust mechanisms, then ask whether framing misreports as explicit lies helps. We develop a 2X2 experiment that varies direct vs. extended mechanisms with implicit vs. explicit messages. We find that framing misreporting of type as an explicit lie shifts play away from the worker-optimal outcome toward truthful reporting, raising designer payoffs with minimal efficiency loss. These findings indicate that lying aversion is an effective lever for aligning behavior with social objectives. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.16973 |
| By: | Zhihao Gavin Tang; Yixin Tao; Shixin Wang |
| Abstract: | We study prior-independent pricing for selling a single item to a single buyer when the seller observes only a single sample from the valuation distribution, while the buyer knows the distribution. Classical robust pricing approaches either rely on distributional statistics, which typically require many samples to estimate, or directly use revealed samples to determine prices and allocations. We show that these two regimes can be bridged by leveraging the buyer's informational advantage: pricing policies that conventionally require the seller to know statistics such as the mean, $L^\eta$-norm, or superquantile can, in our framework, be implemented using only a single hidden sample. We introduce hidden pricing mechanisms, in which the seller commits ex ante to a pricing rule based on a single sample that is revealed only after the buyer's participation decision. We show that every concave pricing policy can be implemented in this way. To evaluate performance guarantees, we develop a general reduction for analyzing monotone pricing policies over $\alpha$-regular distributions, enabling a tractable characterization of worst-case instances. Using this reduction, we characterize the optimal monotone hidden pricing mechanisms and compute their approximation ratios; in particular, we obtain an approximation ratio of approximately $0.79$ for monotone hazard rate (MHR) distributions. We further establish impossibility results for general concave pricing policies and for all prior-independent mechanisms. Finally, we show that our framework also applies to statistic-based robust pricing, thereby unifying sample-based and statistic-based approaches. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.18038 |
| By: | Christoph Carnehl; Anton Sobolev; Konrad Stahl; André Stenzel |
| Abstract: | We study information design in a vertically differentiated market. A third party publicly discloses information about the product qualities of two competing firms. More precise information improves consumer matching but increases perceived differentiation, enabling firms to raise prices. Disclosing the product ranking alone suffices to maximize industry profits in a fully covered market. Consumer surplus, however, is maximized by a rank-preserving policy that withholds any information that overturns the prior ranking, as gains from price competition outweigh losses from allocative inefficiency. The conflict between profit- and consumer-optimal policies persists in settings with endogenous participation and nonlinear or asymmetric costs. |
| Keywords: | Information Design, Vertical Product Differentiation, Quality Rankings, Competition |
| JEL: | D43 D82 L13 L15 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_700v2 |
| By: | Orhan Ayg\"un; Bertan Turhan |
| Abstract: | India implements the world's most complex affirmative action program through vertical and horizontal reservations. Although applicants can belong to at most one vertical category, they can qualify for multiple horizontal reservation categories simultaneously. We examine resource allocation problems in India, where horizontal reservations follow a hierarchical structure within a one-to-all horizontal matching framework. We introduce the hierarchical choice rule and show that it selects the most meritorious set of applicants. We thoroughly analyze the properties of the aggregate choice rule, which comprises hierarchical choice rules across all vertical categories. We show that the generalized deferred acceptance mechanism, when coupled with this aggregate choice rule, is the unique stable and strategy-proof mechanism that eliminates justified envy. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.09189 |
| By: | Matthias Lang (LMU Munich); Cédric Wasser (University of Basel) |
| Abstract: | We study the welfare effects of ambiguous product information for a buyer with α-max-min preferences and a price-setting seller. The buyer privately receives information about her valuation. We show that the seller or the buyer can benefit when this information is ambiguous, and we characterize all possible combinations of producer and consumer surplus, as evaluated under ambiguity-sensitive preferences. Ambiguity concerning the valuation perceived by the buyer when making the purchase decision can induce the seller to change the price. Before receiving information, ambiguity concerning the purchase decision can make the buyer optimistic about buying only for high valuations, which relaxes the participation constraint. |
| Keywords: | Ambiguity; uncertainty; information design; bayesian persuasion; strategic learning; pricing; bargaining; |
| JEL: | D42 D81 D82 D83 L12 |
| Date: | 2026–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:564 |
| By: | Siyuan Fan; Zhonghong Kuang; Jingfeng Lu |
| Abstract: | We study the $n$-dimensional contest between two asymmetric players with different marginal effort costs, with each dimension (i.e., battle) modeled as a Tullock contest. We allow general identity-independent and budget-balanced prize allocation rules in which each player's prize increases weakly in the number of their victories, e.g., a majority rule if $n$ is odd. When the discriminatory power of the Tullock winner-selection mechanism is no greater than $2/(n+1)$, a unique equilibrium arises where each player exerts deterministic and identical effort across all dimensions. This condition applies uniformly to all eligible prize allocation rules and all levels of players' asymmetry, and it is tight. Under this condition, we derive the effort-maximizing prize allocation rule: the entire prize is awarded to the player who wins more battles than his opponent by a pre-specified margin, and the prize is split equally if neither player does. When $n$ is odd, and players are symmetric, the majority rule is optimal. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.21564 |
| By: | Huesmann, Katharina; Wambach, Achim |
| Abstract: | Banning money in markets for goods like education or health is a common policy to prevent unfair access by the wealthy. We investigate whether this policy is well-targeted for its intended goal. For this, we introduce a fairness criterion called discrimination-freeness which requires that goods are allocated independently of wealth. Using a model where willingness to pay increases with income, we find the answer depends critically on the level of wealth inequality. When inequality is high, a transfer ban is a well-aligned policy. It is then no more restrictive than requiring discrimination-freeness. The resulting allocations are constrained-efficient, meaning that any Pareto improvement would be discriminatory. When inequality is low, however, a transfer ban can be overly restrictive, as using monetary transfers may improve outcomes without causing discrimination. Our findings suggest that societies with more equitable wealth distribution may have more flexibility to use price mechanisms than those with high inequality. |
| Keywords: | repugnance, inequality, market design, matching markets |
| JEL: | D47 D63 H42 I00 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:336758 |
| By: | Tymofiy Mylovanov; Thomas Tröger |
| Abstract: | We show that in informed-principal settings with generalized private values any neutral optimum (Myerson, 1983) is strongly neologism proof (Mylovanov and Tröger, 2012) and hence is a strong unconstrained Pareto optimum in the setting of Maskin and Tirole (1990). Thus, in any setting with a unique strongly neologism-proof solution this concept is equivalent to neutral optimum. We rely on the unifying concept of neo-optimum that we develop in the companion paper Mylovanov and Tröger (2026). The main step is to prove that any neo-optimum is strongly neologism-proof. |
| Keywords: | informed principal, private values, mechanism design, signaling, neologism |
| JEL: | C72 D82 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_732 |
| By: | Simon Jantschgi; Heinrich H. Nax; Bary S. R. Pradelski; Marek Pycia |
| Abstract: | Minimizing volatility and adjustment costs is of central importance in many economic environments, yet it is often complicated by evolving feasibility constraints. We study a decision maker who repeatedly selects an action from a stochastically evolving interval of feasible actions in order to minimize either average adjustment costs or variance. We show that for strictly convex adjustment costs (such as quadratic variation), the optimal decision rule is a reference rule in which the decision maker minimizes the distance to a target action. In general, the optimal target depends both on the previous action and the expectation of future constraints; but for the special case where the constraints follow a random walk, the optimal mechanism is to simply target the previous action. If the decision maker minimizes variance, the optimal policy is also a reference rule, but the target is a constant, which is not necessarily equal to the long-term average action. Compared to mid-point heuristics, these optimal rules may substantially reduce quadratic variation and variance, in natural environments by $50\%$ or more. Applied to stock market auctions, our results provide an explanation for the wide-spread use of reference price rules. We also apply our results to bilateral trade in over-the-counter markets, capacity planning in supply chains, and positioning in political agenda setting. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.15686 |
| By: | Maria Andraos; Mario Ghossoub |
| Abstract: | We study a monopolistic insurance market with hidden information, where the agent's type $\theta$ is private information that is unobservable to the insurer, and it is drawn from a continuum of types. The hidden type affects both the loss distribution and the risk attitude of the agent. Within this framework, we show that a menu of contracts is incentive efficient if and only if it maximizes social welfare, subject to incentive compatibility and individual rationality constraints. This equivalence holds for general concave utility functionals. In the special case of Yaari Dual Utility, we provide a semi-explicit characterization of optimal incentive-efficient menus of contracts. We do this under two different settings: (i) the first assumes that types are ordered in a way such that larger values of $\theta$ correspond to more risk-averse types who face stochastically larger losses; whereas (ii) the second assumes that larger values of $\theta$ correspond to less risk-averse types who face stochastically larger losses. In both settings, the structure of optimal incentive-efficient menus of contracts depends on the level of the social welfare weight. Moreover, at the optimum, higher types receive greater coverage in exchange for higher premia. Additionally, optimal menus leave the lowest type indifferent, with the insurer absorbing all surplus from the lowest type; and they exhibit efficiency at the top, that is, the highest type receives full coverage. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.09967 |
| By: | Fedor Sandomirskiy; Ben Wincelberg |
| Abstract: | We ask when a normal-form game yields a single equilibrium prediction, even if players can coordinate by delegating play to an intermediary such as a platform or a cartel. Delegation outcomes are modeled via coarse correlated equilibria (CCE) when the intermediary cannot punish deviators, and via the set of individually rational correlated profiles (IRCP) when it can. We characterize games in which the IRCP or the CCE is unique, uncovering a structural link between these solution concepts. Our analysis also provides new conditions for the uniqueness of classical correlated and Nash equilibria that do not rely on the existence of dominant strategies. The resulting equilibria are robust to players' information about the environment, payoff perturbations, pre-play communication, equilibrium selection, and learning dynamics. We apply these results to collusion-proof mechanism design. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.21470 |
| By: | Bruce I. Carlin; Tingting Liu; Micah S. Officer; Agathe Pernoud; Danni Tu |
| Abstract: | Allocation mechanisms in M&A deals are complex, but a main feature is that a target board controls who to invite to the sale. In a theoretical model, we show that it is optimal for the target to invite fewer potential acquirers when they are more homogeneous (i.e., when their values for the target are more correlated). Furthermore, greater correlation (and hence a smaller optimal bidder pool) yields the target a higher surplus from the sale (i.e., higher premium). We test the model empirically and show that M&A deals with smaller bidder pools are associated with higher target returns. This is not a result of synergies in the deals: the target's share of the surplus is simply higher in deals with smaller bidder pools. Finally, we show that cash deals are associated with larger, whereas stock deals have smaller, pools of bidders. |
| JEL: | G34 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34846 |
| By: | Cheng Guo; Lauren Henderson; Ryan Cory-Wright; Boshi Yang |
| Abstract: | Nonconvexities in markets with discrete decisions and nonlinear constraints make efficient pricing challenging, often necessitating subsidies. A prime example is the unit commitment (UC) problem in electricity markets, where costly subsidies are commonly required. We propose a new pricing scheme for nonconvex markets with both discreteness and nonlinearity, by convexifying nonconvex structures through a semidefinite programming (SDP) relaxation and deriving prices from the relaxation's dual variables. When the choice set is bounded, we establish strong duality for the SDP, which allows us to extend the envelope theorem to the value function of the relaxation. This extension yields a marginal price signal for demand, which we use as our pricing mechanism. We demonstrate that under certain conditions-for instance, when the relaxation's right hand sides are linear in demand-the resulting lost opportunity cost is bounded by the relaxation's optimality gap. This result highlights the importance of achieving tight relaxations. The proposed framework applies to nonconvex electricity market problems, including for both direct current and alternating current UC. Our numerical experiments indicate that the SDP relaxations are often tight, reinforcing the effectiveness of the proposed pricing scheme. Across a suite of IEEE benchmark instances, the lost opportunity cost under our pricing scheme is, on average, 46% lower than that of the commonly used fixed-binary pricing scheme. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.15722 |
| By: | Devansh Jalota; Sharon Di; Adam N. Elmachtoub |
| Abstract: | Congestion pricing has emerged as an effective tool for mitigating traffic congestion, yet implementing welfare or revenue-optimal dynamic tolls is often impractical. Most real-world congestion pricing deployments, including New York City's recent program, rely on significantly simpler, often static, tolls. This discrepancy motivates the question of how much revenue and welfare loss there is when real-world traffic systems use static rather than optimal dynamic pricing. We address this question by analyzing the performance gap between static (simple) and dynamic (optimal) congestion pricing schemes in two canonical frameworks: Vickrey's bottleneck model with a public transit outside option and its city-scale extension based on the Macroscopic Fundamental Diagram (MFD). In both models, we first characterize the revenue-optimal static and dynamic tolling policies, which have received limited attention in prior work. In the worst-case, revenue-optimal static tolls achieve at least half of the dynamic optimal revenue and at most twice the minimum achievable system cost across a wide range of practically relevant parameter regimes, with stronger and more general guarantees in the bottleneck model than in the MFD model. We further corroborate our theoretical guarantees with numerical results based on real-world datasets from the San Francisco Bay Area and New York City, which demonstrate that static tolls achieve roughly 80-90% of the dynamic optimal revenue while incurring at most a 8-20% higher total system cost than the minimum achievable system cost. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.21495 |
| By: | Yi-Chun Chen; Ruoyu Wang; Xinhan Zhang |
| Abstract: | Belief elicitation is ubiquitous in experiments but can distort behavior in the main tasks. We study when, and how, an experimenter can ask for a series of action-dependent belief statistics after a subject chooses an action, while incentivize truthful reports without distorting the subject's optimal action in the main experimental tasks. We first propose a novel mechanism called the Counterfactual Scoring Rule (CSR), which achieves such nondistortionary elicitation of any single belief statistic by decomposing it into supplemental action-independent statistics. In contrast, when eliciting a fixed set of belief statistics without such decomposition, we show that robust nondistortionary elicitation is achievable if and only if the questions satisfy a joint alignment condition with the task payoff. The necessity of joint alignment is established through a graph theoretical approach, while its sufficiency follows from invoking an adaptation of the Becker-DeGroot-Marschak mechanism. Our characterization applies to experiments with general task-payoff structures and belief elicitation questions. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.10474 |