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on Economic Design |
| By: | Samuel H\"afner; Marek Pycia; Haoyuan Zeng |
| Abstract: | We study the design of mechanisms -- e.g., auctions -- when the designer does not control information flows between mechanism participants. A mechanism equilibrium is leakage-proof if no player conditions their actions on leaked information; a property distinct from ex-post incentive compatibility. Only leakage-proof mechanisms can implement social choice functions in environments with leakage. Efficient auctions need to be leakage-proof, while revenue-maximizing ones not necessarily so. Second-price and ascending auctions are leakage-proof; first-price auctions are not; while whether descending auctions are leakage-proof depends on tie-breaking. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.00715 |
| By: | Haoyuan Zeng |
| Abstract: | This paper studies the incentives of the seller and buyers to shill bid in a single-item auction. An auction is seller identity-compatible if the seller cannot profit from pretending to be one or more bidders via fake identities. It is buyer identity-compatible if no buyer profits from posing as more than one bidder. Lit auctions reveal the number of bidders, whereas dark auctions conceal the information. We characterize three classic selling mechanisms -- first-price, second-price, and posted-price -- based on identity compatibility. We show the importance of concealing the number of bidders, which enables the implementation of a broader range of outcome rules. In particular, no optimal lit auction is ex-post seller identity-compatible, while the dark first-price auction (with reserve) achieves the goal. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.00723 |
| By: | Sai Praneeth Donthu; Souvik Roy; Soumyarup Sadhukhan; Gogulapati Sreedurga |
| Abstract: | We study the classical probabilistic assignment problem, where finitely many indivisible objects are to be probabilistically or proportionally assigned among an equal number of agents. Each agent has an initial deterministic endowment and a strict preference over the objects. While the deterministic version of this problem is well understood, most notably through the characterization of the Top Trading Cycles (TTC) rule by Ma (1994), much less is known in the probabilistic setting. Motivated by practical considerations, we introduce a weakened incentive requirement, namely SD-top-strategy-proofness, which precludes only those manipulations that increase the probability of an agent's top-ranked object. Our first main result shows that, on any free pair at the top (FPT) domain (Sen, 2011), the TTC rule is the unique probabilistic assignment rule satisfying SD-Pareto efficiency, SD-individual rationality, and SD-top-strategy-proofness. We further show that this characterization remains valid when Pareto efficiency is replaced by the weaker notion of SD-pair efficiency, provided the domain satisfies the slightly stronger free triple at the top (FTT) condition (Sen, 2011). Finally, we extend these results to the ex post notions of efficiency and individual rationality. Together, our findings generalize the classical deterministic results of Ma (1994) and Ekici (2024) along three dimensions: extending them from deterministic to probabilistic settings, from full strategy-proofness to top-strategy-proofness, and from the unrestricted domain to the more general FPT and FTT domains. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.04142 |
| By: | Carmelo Rodríguez à lvarez (Instituto Complutense de Análisis Económico (ICAE), Universidad Complutense de Madrid (Spain)) |
| Abstract: | We consider strategy-proof social choice correspondences (SCCs) –mappings from preference profiles to sets of alternatives– when individuals are endowed with single-peaked preferences over alternatives. We interpret the selected sets of alternatives as the basis for lotteries that determine the final social choice, and consider that agents’ preferences over sets are consistent with Expected Utility Theory and Bayesian updating from an initial probability assessment over the full set of alternatives. We exploit the relation between SCCs and probabilistic decision schemes –mappings from preference profiles to lotteries over alternatives–, to characterize the family of SCCs that satisfy strategy-proofness and unanimity for arbitrary initial probability assessments. We extend the analysis to multi-dimensional convex spaces of alternatives under the uniform initial probability assessment. |
| Keywords: | Strategy-Proofness; Single-Peaked Preferences; Social Choice Correspondences. |
| JEL: | C71 D71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ucm:doicae:2506 |
| By: | Peyman Shahidi; Gili Rusak; Benjamin S. Manning; Andrey Fradkin; John J. Horton |
| Abstract: | AI agents—autonomous systems that perceive, reason, and act on behalf of human principals—are poised to transform digital markets by dramatically reducing transaction costs. This chapter evaluates the economic implications of this transition, adopting a consumer-oriented view of agents as market participants that can search, negotiate, and transact directly. From the demand side, agent adoption reflects derived demand: users trade off decision quality against effort reduction, with outcomes mediated by agent capability and task context. On the supply side, firms will design, integrate, and monetize agents, with outcomes hinging on whether agents operate within or across platforms. At the market level, agents create efficiency gains from lower search, communication, and contracting costs, but also introduce frictions such as congestion and price obfuscation. By lowering the costs of preference elicitation, contract enforcement, and identity verification, agents expand the feasible set of market designs but also raise novel regulatory challenges. While the net welfare effects remain an empirical question, the rapid onset of AI-mediated transactions presents a unique opportunity for economic research to inform real-world policy and market design. |
| JEL: | D47 D83 J44 K20 L15 L86 O33 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34468 |
| By: | Tatyana Deryugina; Alminas Zaldokas; Anastassia Fedyk; Yuriy Gorodnichenko; James Hodson; Ilona Sologoub |
| Abstract: | We develop a novel, scalable method for assessing the quality of public procurement systems using standard administrative data. Our approach compares the distribution of procurement opportunities to the distribution of contract awards across firms. We first derive a simple theoretical benchmark that relates the expected distribution of contract value winning firms, measured as a Herfindahl-Hirschman index (HHI), to the distribution of auction values, measured as a respective HHI, and the number of winning firms. Significant deviations of winning firms' HHI from this benchmark indicate potential governance failures such as corruption or unchecked collusion. Our method requires no subjective input, is transparent and reproducible, and allows for meaningful comparisons across countries, industry sectors, and over time. We use procurement data from Ukraine and EU member states in 2018-2021 to assess the performance of five large sectors. Results indicate that Ukraine's procurement performance in four of the five sectors is comparable to many other European countries. However, Ukraine's construction sector consistently displays the largest excess concentration among all countries considered, consistent with anecdotal evidence of corruption in this sector. Overall, with minimal data requirements, our method offers a practical tool for cross-sector and cross-country assessment of procurement systems. |
| Keywords: | procurement, corruption, Ukraine, collusion |
| JEL: | D73 L10 H11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12250 |
| By: | Quitz\'e Valenzuela-Stookey |
| Abstract: | A firm can complete the tasks needed to produce output using either machines or workers. Unlike machines, workers have private information about their preferences over tasks. I study how this information asymmetry shapes the mechanism used by the firm to allocate tasks across workers and machines. I identify important qualitative differences between the mechanisms used when information frictions are large versus small. When information frictions are small, tasks are substitutes: automating one task lowers the marginal cost of other tasks and reduces the surplus generated by workers. When frictions are large, tasks can become complements: automation can raise the marginal cost of other tasks and increase the surplus generated by workers. The results extend to a setting with multiple firms competing for workers. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.02675 |
| By: | Arrora. Falak (University of Warwick) |
| Abstract: | How does the presence of fake news affect incentives to acquire legitimate information? I study a model of costly information acquisition where either an honest or a fake sender communicates with a receiver through a platform. The honest sender sends a true but noisy signal, whereas the fake sender sends a false and uninformative signal. The platform can verify the signal’s authenticity; however, it faces a tradeoff. Fake news, although harmful for the receiver, makes her more skeptical and increases the honest sender’s incentives for acquiring more precise information. The platform commits to a policy that indicates the screening probability and a disclosure rule. My central finding is that the screening policy that maximizes the receiver’s welfare often requires tolerating fake news, even when such screening is costless. Moreover, not informing the receiver even when a message has been screened and found to be true is sometimes better than full transparency because it keeps the receiver skeptical.These findings suggest that complete moderation and fact-checking of content may inadvertently leave the receiver worse off. |
| Keywords: | Information acquisition ; communication game ; fake news ; platforms ; fact-checking JEL Codes: C72 ; D82 ; D83 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1586 |