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on Economic Design |
| By: | Jeong, Byeong-hyeon; Pycia, Marek |
| Abstract: | We show that first-price auctions can maximize a wide variety of objectives, including revenue, welfare, bidder surplus, and equality, while second-price (or ascending) auctions do not maximize revenue except in Myerson’s regular case. This stark contrast between canonical auction pricing rules qualifies the celebrated revenue equivalence. Furthermore, the optimality of first-price auctions does not hinge on any distributional assumptions, which enables us to analyze problems that are beyond the scope of Myersonian mechanism design. The resulting optimal auctions might employ not only reserve prices but also bid caps and other exclusions in the space of allowed bids. We also provide tools for the optimal design of first-price auctions and establish conditions for equilibrium existence and uniqueness. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21116 |
| By: | Doval, Laura; Smolin, Alex |
| Abstract: | We study mechanism design when a designer repeatedly uses a fixed mechanism to interact with strategic agents who learn from observing their allocations. We introduce a static framework, calibrated mechanism design, requiring mechanisms to remain incentive compatible given the information they reveal about an underlying state through repeated use. In single-agent settings, we prove implementable outcomes correspond to two-stage mechanisms: the designer discloses information about the state, then commits to a stateindependent allocation rule. This yields a tractable procedure to characterize calibrated mechanisms, combining information design and mechanism design. In private values environments, full transparency is optimal and correlation-based surplus extraction fails. We provide a microfoundation by showing calibrated mechanisms characterize exactly what is implementable when an infinitely patient agent repeatedly interacts with the same mechanism. Dynamic mechanisms that condition on histories expand implementable outcomes only by weakening incentive compatibility and individual rationality—a distinction that vanishes in transferable utility settings. |
| Keywords: | Dynamic mechanism design |
| JEL: | D86 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20994 |
| By: | Bergemann, Dirk; Heumann, Tibor; Morris, Stephen |
| Abstract: | We develop an integrated framework for information design and mechanism design in screening environments with quasilinear utility. Using the tools of majorization theory and quantile functions, we show that both information design and mechanism design problems reduce to maximizing linear functionals subject to majorization constraints. For mechanism design, the designer chooses allocations weakly majorized by the exogenous inventory. For information design, the designer chooses information structures that are majorized by the prior distribution. When the designer can choose both the mechanism and the information structure simultaneously, then the joint optimization problem becomes bilinear with two majorization constraints. We show that pooling of values and associated allocations is always optimal in this case. Our approach unifies classic results in auction theory and screening, extends them to information design settings, and provides new insights into the welfare effects of jointly optimizing allocation and information. |
| Keywords: | Screening |
| JEL: | D44 D47 D82 D83 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21088 |
| By: | Dirk Bergemann (Yale University); Kevin Breuer; Peter Cramton (Max Planck Institute for Research on Collective Goods and University of Maryland); Jack Hirsch (Harvard University); Yero S. Ndiaye (University of Cologne and Max Planck Institute for Behavioral Economics); Axel Ockenfels (Adenauer School of Government and Department of Economics, University of Cologne; Max Planck Institute for Behavioral Economics) |
| Abstract: | A soft-floor auction asks bidders to accept an opening price to participate in a second-price auction. If no bidder accepts, lower bids are considered using first-price rules. Soft floors are common despite being irrelevant with standard assumptions. When bidders regret losing, soft-floor auctions are more efficient and profitable than standard optimal auctions. Revenue increases as bidders are inclined to accept the opening price to compete in a regret-free second-price auction. Efficiency improves because a soft floor allows for a lower hard reserve, reducing the frequency of no sale. Theory and experiment confirm these motivations from practice. |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2512 |
| By: | Varun Bansal (Indian Statistical Institute); Mihir Bhattacharya (Ashoka University); Ojasvi Khare (Shiv Nadar University) |
| Abstract: | We study the existence of stable matchings in markets where agents are described by choice correspondences rather than preference relations. For many-to-many matching markets, we introduce a condition called Settled Set Persistence (SSP) and show that substitutability together with SSP guarantees the existence of a CY-stable matching. The proof is constructive and yields a dynamic, one-at-a-time offer algorithm. We also show that path independence and SSP are logically independent, neither implies the other, so SSP identifies a different sufficient condition for stability. For one-to-one matching markets, we introduce a replacement-based notion of stability and a binary acyclicity condition on pairwise choices, and show that this condition guarantees the existence of stable matchings. Since path independence implies binary acyclicity but not conversely, our results identify weaker behavioral conditions for stability. |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:ash:wpaper:160 |
| By: | Dirk Bergemann (Department of Economics, Yale University); Marek Bojko (Department of Economics, Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (Department of Computer Science, University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study the design of efficient dynamic recommendation systems, such as AI shopping assistants, in which a platform interacts with a user over multiple rounds to identify the most suitable product among those offered by advertisers. Advertisers have multi-dimensional private information: their private value from a purchase and private information about the user's preferences. In each round, the platform displays recommendations; the user learns product characteristics of the shown items and then chooses whether to purchase, exit without purchasing, or submit a new query. These actions generate a stream of feedbackÑpurchase, exit, and follow-up queriesÑthat is informative about the user's preferences and can be used both to refine future recommendations and to design contingent transfers. We introduce a class of data-driven dynamic team mechanisms that condition payments on realized user feedback. Our main result shows that data-driven dynamic team mechanisms achieve periodic ex-post implementation of the efficient allocation rule. We then develop variants that guarantee participation and deliver budget surplus, and provide conditions under which these properties can be jointly attained. |
| Date: | 2026–04–03 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2513 |
| By: | Andrew Mackenzie; Christian Trudeau |
| Abstract: | We introduce endogenous shareholding auctions for production economies where a monopolist must elicit consumer demand in order to determine price and quantity. Each of these auctions has the property that the auction's profit is distributed across the monopolist and the consumers in accordance with ownership shares that are determined over the course of the auction. We characterize this class, and a larger class, on the basis of standard axioms. Finally, we investigate optimal auctions according to both prior-free domination and subjective expected welfare. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.02457 |
| By: | Satoshi Nakada; Toshiya Yoshimura |
| Abstract: | This paper proposes new robustness criteria for social choice correspondences under single-peaked preferences, inspired by the concepts of robustness in statistical estimation, where robust estimators are designed to be resilient to both model misspecification and outliers. Motivated by robustness to model assumptions, we introduce peak-robustness: a voting rule is peak-robust if it never selects an alternative that is a majority loser relative to some unchosen alternative for any preference profile sharing the same peak profile. To capture robustness to outliers, we propose tail-invariance, which requires that variations in the tails of the peak distribution do not affect the collective decision. Our main result shows that the median voting rule is the unique efficient rule satisfying these robustness criteria. When peak-robustness is weakened, we characterize the broader class of quantile rules. Taken together, these results provide a robustness-based axiomatic foundation for median and quantile voting rules, independent of the traditional strategy-proofness approach. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.25798 |
| By: | Dworczak, Piotr; Smolin, Alex |
| Abstract: | An agent chooses an action using her private information combined with recommendations from an informed but potentially misaligned adviser. With a known alignment probability, the adviser reports his signal truthfully; with remaining probability, the adviser can send an arbitrary message. We characterize the decision rule that maximizes the agent's worst-case expected payoff. Every optimal rule admits a trust region representation in belief space: advice is taken at face value when it induces a posterior within the trust region; otherwise, the agent acts as if the posterior were on the trust region's boundary. We derive thresholds on the alignment probability above which the adviser's presence strictly benefits the agent and fully characterize the solution in binary-state as well as binary-action environments. |
| JEL: | D81 D82 D83 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21148 |
| By: | Gerlagh, Reyer; Liski, Matti; Vehviläinen, Iivo |
| Abstract: | When demand aggregates both price-sensitive and price-insensitive behaviors, uniform pricing becomes a deficient market design that generates negative surplus during extreme-price events. We develop a price-control mechanism that efficiently resolves the tradeoff between protecting consumers and limiting rents. The mechanism implements a dynamic price cap that responds to demand adjustments and induces truthful supply through incentive payments. In a quantitative application to the French wholesale electricity market during the 2022–2023 energy crisis, the mechanism would have lowered expected procurement costs by roughly €200 billion, about two-thirds of total projected costs in this central scenario. |
| Keywords: | Price controls; Market efficiency; Energy prices |
| JEL: | D45 D61 Q41 Q48 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20971 |
| By: | Alex Chan |
| Abstract: | This paper studies market design for generative AI intermediation. AI answer systems can improve user experience while diverting visits that finance publisher content and generate source-level quality signals. I show that an AI platform that underinternalizes future content reproduction retains too little referral traffic and can make costly open-web information subcritical, even with truthful content, accurate answers, and rational users. The mechanism can be self-reinforcing: less source-level measurement weakens conventional search, inducing further AI reliance. Sustainable repair requires replacing displaced revenue and deleted measurement through visitor-replacement royalties, audited provenance, human-information audits, and keystone-topic compensation. |
| JEL: | D4 D43 D47 D49 D62 D8 D82 D83 L82 L86 O3 O33 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35344 |
| By: | Kevin Leportier (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, INSPÉ Normandie Caen - Institut national supérieur du professorat et de l'éducation - Normandie Caen - UNICAEN - Université de Caen Normandie - NU - Normandie Université) |
| Abstract: | This paper examines whether the algorithmic institutions developed within market design are compatible with the Hayekian conception of liberty as the absence of coercion. While market design is often presented as a continuation of Hayekian insights regarding dispersed knowledge and decentralized coordination, this paper argues that Hayekian liberty depends on more than decentralized choice. It also requires a stable institutional environment within which individuals can form coherent plans and learn from experience. Algorithmic institutions tend to weaken this stability, thereby undermining Hayekian liberty. |
| Keywords: | Hayek, Algorithmic institutions, Coercion, Liberty, Freedom, Market design, Mechanism design |
| Date: | 2026–05–26 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05676848 |
| By: | Lucero Quevedo Mauricio; Paola Manasero; Pablo Neme; Jorge Oviedo |
| Abstract: | This paper studies the structure and computation of von Neumann-Morgenstern (vNM) stable sets in one-to-one matching markets. While pairwise stability and corewise stability coincide under strict preferences and provide a well-understood benchmark, vNM stability is defined through dominance relations among sets of matchings and remains considerably more difficult to characterize. A key contribution of the paper is a generalization of the classical Decomposition Lemma. We show that the structural decomposition traditionally used to compare stable matchings extends to any pair of matchings belonging to the same internally stable set. This result reveals a previously unexplored connection between internal stability and the cycle structure underlying matching markets. Building on this characterization, we identify the relationships that are relevant for dominance-based stability and derive a reduced environment that concentrates all undominated outcomes. Our main result shows that the vNM stable set is unique and admits a simple characterization in terms of the core of this reduced environment. The characterization provides both structural insight and a constructive procedure for computing the vNM stable set using standard matching theoretic tools. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.00869 |
| By: | Quitzé Valenzuela-Stookey; E. Jason Baron; Richard Lombardo |
| Abstract: | Unilateral vetoes, in which an agent takes an action that restricts the set of possible outcomes for themselves independent of what other agents do, are a frequently used tool in real-world approaches to multi-dimensional screening. We study how this tool works in a class of task-allocation problems. We characterize obvious strategy-proofness of unilateral-veto mechanisms, yielding structural insights into how veto rights shape incentives: obviously strategy-proof mechanisms consist of diverse menus of narrowly defined rights. We then examine the potential of this simple class of mechanisms as a practical market-design tool and provide empirical evidence of their efficacy in two applications. |
| JEL: | C78 D47 D61 D82 J45 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35383 |
| By: | Bill Roungas; Sebastiaan Meijer |
| Abstract: | We present a multi-agent system for studying the allocation of discrete, congested resources among heterogeneous strategic agents, motivated by the problem of railway slot allocation under deregulation. Multiple operator-agents, differing in size and capacity, interact through a shared auction mechanism over repeated rounds under time-constrained decision-making. The mechanism combines a congestion-based base price that increases with aggregate demand with an asymmetric corrective adjustment that penalises the agent requesting the most slots and rewards the agent requesting the fewest, and is designed to mitigate strategic dominance by large agents while preserving transparency and congestion sensitivity. We formulate the interaction as a repeated game with incomplete information and implement the system as a real-time, web-based multi-agent environment in which human participants control individual agents and observe live marginal-cost and competitor feedback. We report exploratory observations from two structured sessions with domain experts acting as operator-agents. The congestion mechanism responds to aggregate demand as designed and the corrective incentives are actively triggered, but agents representing large operators persist with high-request strategies despite the penalty, suggesting that corrective pricing is necessary but not sufficient to neutralise strategic dominance in this multi-agent setting. A post-session debrief indicates that participants' decisions were driven by the assumed agent role rather than personal disposition, and provides qualitative support for strategic motives, such as preserving market presence and raising rivals' costs, operating alongside short-term profit maximisation. We discuss implications for multi-agent mechanism design under asymmetric budgets and outline directions for analytical validation and larger-scale multi-agent experiments. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.01822 |
| By: | Oosterbeek, Hessel; Rozsos, Tina; van der Klaauw, Bas |
| Abstract: | Close to 20% of secondary school students in Amsterdam - and elsewhere - transfer between secondary schools at some point, even when initially placed in their most-preferred school. School switching is costly for the students involved and disrupts the learning environment of their former and new classmates. Using data from the Amsterdam secondary-school match linked to administrative registers, we show that switching can be predicted by hard-to-rationalize initial school choices. Over 60% of switchers can be correctly identified at the admission stage. Simulations indicate that encouraging predicted switchers to adjust their preference ranking of schools could reduce the switching rate by almost 15%. |
| JEL: | I21 C35 C53 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20890 |
| By: | Bourlés, Renaud; Laurent-Lucchetti, Jérémy; Rochet, Jean-Charles |
| Abstract: | Ten years after COP21, carbon emission trajectories remain far above the 1.5 ° C threshold, due to lack of international consensus. Breaking from cost-benefit approaches, we assess the maximum reduction in carbon emissions that could be accepted by all countries. We characterize the consistent target mechanism that minimizes global emissions subject to the participation constraint of each country. The mechanism can be implemented either via a uniform carbon tax or as a cap–and–trade system. Calibrated to data from 69 countries, including GDP, carbon intensities, and observed tax rates, our model suggests – for our baseline scenario – that a uniform carbon price of $250 per ton would be politically acceptable by all countries. It could reduce global emissions by 35%, but would require unprecedented international transfers: up to 3% of world GDP, with a large redistribution from high-income, low-emission countries to carbon-intensive emerging economies. Our analysis highlights the structural ambition gap imposed by voluntary cooperation and identifies two levers to overcome it: convergence in green technologies and stronger political support for mitigation. Without progress in these dimensions, international climate policy remains constrained to deliver only modest results. |
| JEL: | Q54 Q58 F55 H23 C73 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20863 |
| By: | Gersbach, Hans |
| Abstract: | This paper introduces Propose or Vote (PoV), a democratic procedure for collective decision-making and elections that does not rely on a central mechanism designer. In the first stage, members of a polity choose whether to become proposal-makers or to participate only as voters. In the second stage, voters decide by majority voting over the set of submitted proposals. With appropriately chosen default points, PoV implements the Condorcet winner in a single round of voting whenever one exists. We show that this implementation is globally unique when the number of members is odd; for an even number of members, uniqueness can be restored by adding an artificial agent. PoV can also be applied to elections, where agents decide whether to stand as candidates or vote over the resulting candidate set. |
| Keywords: | proposal-making; Democracy; Majority voting |
| JEL: | C72 D70 D72 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21026 |
| By: | Ren\'e A\"id; Nizar Touzi; St\'ephane Villeneuve |
| Abstract: | We study how forward hedging reshapes incentive provision inside the firm. We consider a risk-averse producer facing demand and production risk that can either operate in-house or delegate production to a risk-averse agent under moral hazard, while hedging output in a competitive forward market with a rational market maker. Within a tractable continuous-time CARA framework, we jointly characterize optimal production, compensation, and static hedging in equilibrium. Delegation and external hedging are partial substitutes because both create value through risk sharing. Delegation can increase firm value even when the agent uses the same technology and is more risk averse than the principal, while access to forward hedging reduces the need to provide incentives through risk exposure. This mechanism delivers two main results. First, the principal hedges less under delegation than under in-house production. Second, this lower hedging demand under delegation raises the equilibrium forward price relative to the integrated benchmark. In the constant-demand case, we show that access to hedging lowers the agent's expected compensation under delegation. Numerical results indicate that this mechanism remains robust in the presence of demand uncertainty. More broadly, our results show that external risk transfer through financial markets feeds back into internal organizational design. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.16493 |
| By: | Xiaoming Cai (Peking University HSBC Business School); Pieter Gautier (Vrije Universiteit Amsterdam); Ronald Wolthoff (University of Toronto) |
| Abstract: | Digital platforms allocate buyer attention across sellers that differ in quality and breadth of appeal. We study a monopoly platform that sets meeting rates between buyers and two seller types --- niche sellers whose high-quality good is valued by a fraction x of buyers and mass-market sellers whose good is valued by all. Sellers compete by posting prices à la Burdett and Judd (1983), so buyer surplus requires competition, while platform revenue requires seller rents. This difference creates a systematic distortion: as search capacity grows, the platform keeps high-quality niche attention just past the point where extra exposure stops creating rents and starts eroding them – its saturation point – and diverts the rest to mass-market sellers. The resulting buyer-surplus loss converges to a finite limit proportional to the quality gap between the two goods, split equally between an allocative loss from too little high-quality exposure and excess rent extracted by sellers. Applying the model to Amazon product search and Google passage-ranking data indicates that, for captive buyers, both platforms operate past the saturation point, with buyer-surplus losses of 63 and 44 percent of the planner's benchmark, respectively. Allowing buyer participation to respond to the platform's recommendation strategy disciplines the platform and shrinks this loss. |
| Keywords: | Attention allocation, Recommendation systems, Search frictions, Two-sided markets, Enshittification of Internet |
| JEL: | D62 D83 L12 L40 |
| Date: | 2026–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260035 |
| By: | Kazuki Sekiya; Suguru Otani; Yuki Komatsu; Yuki Fujii; Shunsuke Ozeki; Shunya Noda |
| Abstract: | How should recommender systems be designed when recommendations shape access to scarce, short-lived opportunities? We study this question in a production setting: Timee, Japan's largest platform for spot work, where workers favorite job templates and receive notifications when firms post shifts from those templates. Maximizing predicted favoriting can generate misdirected concentration: recommendations accumulate on popular templates that create few viable job openings, while templates with unmet labor demand receive too little exposure. We design exposure-control mechanisms for favorite-list management, reallocating template exposure based on posting activity and unfilled capacity. The proposed recommender, thresholded eligibility control (TEC), is fully parallelizable and suitable for large-scale digital platforms. In simulations calibrated to Timee data, TEC raises the per-round job-finding rate from 57.6% to 70.0%. A prefecture-level randomized field experiment increases realized matches and exposure per active template, reduces the share of low-exposure templates, and improves impression-level favoriting and downstream matching. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.17397 |
| By: | Martinez, Ricardo; Moreno-Ternero, Juan; Pan, Pengshan; Weber, Shlomo |
| Abstract: | Since trans boundary rivers support large populations and economic production, the challenge of a fair water sharing became an issue of increasing importance across the world. Yet the existing research which describes various paths of cooperation, treaty formation, and institutional durability, does not offer an operational benchmark and a clear standard against which negotiated allocations can be evaluated. In this paper we study fair protocols resorting to allocation rules with strong normative grounds, connected to the principle of Territorial Integration of all Basin States. We then apply our results to the Amu Darya and Syr Darya rivers of the Aral Sea Basin, where post-Soviet institutional fragmentation emerged from a previously unified hydraulic system. Our approach accommodates the Aral Basin’s multi-path configuration and allows for computable fairness benchmarks that can guide the evaluation and reform of allocation regimes. |
| JEL: | D23 D63 Q25 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21064 |
| By: | Mark Whitmeyer |
| Abstract: | Labels -- grades, credentials, scores, ratings, ranks -- do two things. They inform receivers, and they give agents something to chase. I study optimal classification when labels must be earned through costly self-selection. I show that exact certification is inefficiently fine: pooling a small bottom interval saves first-order signaling costs while losing only higher-order decision value. I provide sufficient conditions for lower censorship to maximize efficiency as well as for every optimal classification to use finitely many categories. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.26064 |
| 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 platform's objective and sellers' 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: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2535 |
| By: | Gallo, E.; Heath, R.; Lusthaus, J.; Varese, F. |
| 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: | 2026–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2652 |
| By: | Dirk Bergemann (Yale University); Soheil Ghili (Yale University); Xinyang Hu (Yale University); Chuanhao Li (Yale University); Zhuoran Yang (Yale University) |
| Abstract: | Bilateral bargaining under incomplete information provides a controlled testbed for evaluating large language model (LLM) agent capabilities. Bilateral trade demands individual rationality, strategic surplus maximization, and cooperation to realize gains from trade. We develop a structured bargaining environment in which LLMs negotiate via tool calls within an event-driven simulator, separating binding offers from natural-language messages to enable automated evaluation. The environment serves two purposes: as a benchmark for frontier models and as a training environment for open-weight models via reinforcement learning. In benchmark experiments, a round-robin tournament among five frontier models (15, 000 negotiations) reveals that effective strategies implement price discrimination through sequential offers. Aggressive anchoring, calibrated concession, and temporal patience are associated with both the highest surplus share and the highest deal rate. Accommodating strategies that concede quickly disable price discrimination in the buyer role, yielding the lowest surplus capture and deal completion. Strategically competent models scale their behavior proportionally to item value, maintaining consistent performance across price tiers; weaker models perform well only when wide zones of possible agreement compensate for suboptimal strategies. In training experiments, we fine-tune Qwen3 (8B, 14B) via supervised fine-tuning (SFT) followed by Group Relative Policy Optimization (GRPO) against a fixed frontier opponent. The two stages optimize competing objectives: SFT approximately doubles surplus share but reduces deal rates, while RL recovers deal rates but erodes surplus gainsÑa tension traceable to the reward structure. SFT also compresses surplus variation across price tiers, and this compression generalizes to opponents unseen during training, suggesting that behavioral cloning instills proportional strategies rather than memorized price points. |
| Date: | 2026–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2514 |
| By: | Nano Barahona; Juan-Pablo Montero; Pedro Skorin |
| Abstract: | Vehicle inspections—commonly known as smog and safety checks—are often delegated to private agents, much like other quality certification markets. When these agents compete, they face incentives to misreport quality—especially when consumers do not internalize the external costs of misreporting. Theory and evidence from Chile’s concentrated vehicle-inspection markets suggest that these incentives are significant: misreporting emerges as soon as competition is introduced. We find that delegating each market to a single agent proves effective in reducing approval rates, without compromising service quality or the ex-ante competition for the market, while delivering substantial and permanent reductions in vehicle emissions. |
| JEL: | C72 D43 L51 Q58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35422 |
| By: | Rui Sun |
| Abstract: | A firm that discloses data about one customer moves a downstream seller's belief about every correlated customer, pricing third parties it never transacts with. This privacy externality equals the change in downstream deadweight loss, is signed by which side of the pricing threshold a customer is on, and falls hardest on those just carried across. Disclosure is privately optimal on an open set of imperfect correlations; incentive compatibility prices it through a distorted allocation and rations the discount at the top under a continuum of types. Selling tips disclosure past a liquidity threshold; consent dominates both data minimization and laissez-faire. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.15947 |