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on Economic Design |
| By: | Nima Haghpanah (Yale); Xiao Lin (University of Pennsylvania); Ron Siegel (Pennsylvania State University) |
| Abstract: | We study the sale of an asset to competitive buyers. Before the sale, the seller can buy hard information about the asset from an intermediary who designs and prices a test to maximize his revenue guarantee across equilibria. The test consists of one or more signals, and the seller privately chooses which subset of signals to buy and selectively discloses their realization to the buyers. We show that the intermediary benefits from splitting information into multiple signals and characterize his maximal revenue guarantee as the cumulative entropy of the asset value distribution. This guarantee is achieved by a sequence of “skim from the top” tests with binary, i.i.d. signals and additive pricing. Furthermore, any sequence of tests that achieves the maximal guarantee reveals the asset’s value in the limit. For binary values, we also characterize the revenue guarantee for any given number of signals, and show that it is achieved by a test that corresponds to a “Swiss cheese” model of failure with conclusive good news. |
| Date: | 2026–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:26-019 |
| By: | Chengkai Zhang; Yuhao Li; Elaine Shi; Mengqian Zhang; Lirong Xia; Qishen Han |
| Abstract: | The adaptive clinching auction of Dobzinski, Lavi, and Nisan (FOCS'08) is a cornerstone of mechanism design with budget-constrained bidders, and it has since inspired a broad range of extensions to substantially richer market settings. Adaptive clinching enjoys compelling guarantees: it is Pareto optimal, and truthful bidding is a dominant strategy whenever budgets cannot be overreported. In many real-world environments, however, identities are cheap to create, making resilience to Sybil attacks an additional requirement. Whether the guarantees of adaptive clinching survive when a bidder can split its budget across fake identities has remained open. We introduce a generalized framework for adaptive clinching and prove that it satisfies Sybil-robust incentive compatibility: a bidder cannot benefit from splitting into any finite number of identities with arbitrary value reports, provided their aggregate reported budget does not exceed the bidder's enforceable true budget. Sybil resilience thus joins the list of ideal properties of adaptive clinching. Our work is motivated by practical problems in decentralized finance, where automated market makers (AMMs) are among the most widely used applications. We design a new AMM mechanism that extends classical adaptive clinching in two ways: it supports a two-sided market and protects against two-sided strategies, and it allows the supply function to depend on the auction state. Its one-sided special case is captured by our generalized adaptive clinching framework, and our proof techniques show that the full two-sided mechanism simultaneously satisfies Sybil-robust incentive compatibility and a relaxed notion of Pareto optimality. We argue that these guarantees are essentially the best possible via impossibility results. More broadly, our work reveals new connections between classical algorithmic game theory and modern decentralized blockchains. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36629 |
| By: | Karen Frilya Celine; Warut Suksompong; Nicholas Teh |
| Abstract: | When allocating indivisible goods, the maximum Nash welfare rule is known to be the unique welfarist rule satisfying envy-freeness up to one good. We strengthen this characterization by showing that envy-freeness up to one good can be replaced by substantially weaker fairness requirements: envy-freeness up to $k$ goods or proportionality up to $k$ goods, for any fixed $k$. Our characterization holds even for profiles with identical goods. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36712 |
| By: | Cai, Xiaoming (Peking University HSBC Business School); Gautier, Pieter (Vrije Universiteit Amsterdam) |
| Abstract: | Search frictions normally raise the bar for sorting: both random and directed search require complementarities strictly stronger than the supermodularity that suffices in Becker's (1973) frictionless model. We introduce private information into this setting: firms post wages without observing worker productivity, while better workers have better outside options, creating a market for lemons (Akerlof 1970). We show that this information friction pushes sorting the other way: attracting high-productivity workers without attracting low-productivity ones requires a higher wage paired with a lower job-finding probability, so vacancies fill faster. This strict ranking of vacancy-filling rates sorts the market positively whenever output is complementary in worker and firm quality. Becker's condition therefore suffices once more, and private information makes positive sorting easier to sustain than complete information does. |
| Keywords: | competitive search, adverse selection, screening, sorting, positive assortative matching |
| JEL: | C78 D82 D83 J64 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18985 |
| By: | Adam N. Elmachtoub; Yash Kanoria; Jonathan Y. Tan |
| Abstract: | In AI-assisted service systems, the server can choose how much processing effort to spend on each job, which we call the service depth. Deeper reasoning improves output quality but occupies the server longer and increases congestion, and the realized processing time remains random because AI models are probabilistic and tasks vary in complexity. We study the joint design of service depth and priority in a single-server queue whose customers differ in delay sensitivity, with the goal of maximizing social welfare. For each customer type, the decision maker chooses a priority level and a service depth, and service times are exponential with mean equal to the chosen depth. With two customer types and linear service values, we characterize the centralized optimum. Counterintuitively, it prioritizes the patient type and gives it a smaller service depth when patient customers are sufficiently prevalent. When delay sensitivity is private, however, incentive compatibility requires the impatient type to receive a weakly shorter sojourn time, so the optimal price menu never prioritizes the patient type. Consequently, there can be a welfare gap between the centralized decision maker's optimal control policy and the optimal decentralized pricing mechanism. With a continuum of types, the centralized optimum is monotone: more delay-sensitive customers receive weakly smaller depth and higher priority, so the optimum can be implemented by a price menu with no welfare loss. Allowing randomized depths similarly closes the gap in the two-type model. Finally, we calibrate an agentic AI service system using published coding-agent trials from DeepSWE and numerically examine priority inversion, the value of joint design, and the welfare gain from personalization. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.33334 |
| By: | Mark Whitmeyer; Kun Zhang |
| Abstract: | We introduce a mediator to a communication setting with verifiable (hard) evidence and characterize precisely when mediation can induce every obedient outcome--every type-contingent distribution of actions that the receiver is willing to follow--including the outcome that delivers the sender's commitment (Bayesian persuasion) payoff. For both type-independent and general preferences, it is necessary for each type to have a message he alone can send. This is also sufficient for type-independent preferences, whereas the general case also requires a particular alignment of the types' utilities. We also rank evidence structures by the distributions of actions conditional on the sender's type that they can induce at (mediated) equilibrium, through garbling conditions analogous to Blackwell's comparison of experiments. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36490 |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | Recommendation systems create value by reducing search and information costs, but they also give platforms control over visibility and effective access to users. Recommendation power can weaken competitive constraints by distorting competition among offers or by protecting the platform’s gateway position against rival gateways and direct routes to users. It can also be used to extract surplus from end users or business users. We present specific theories of harm for these uses of recommendation power and illustrate them with competition cases. We then discuss how these theories of harm can be assessed empirically, accounting for how market participants respond to recommendation design. |
| Keywords: | recommender system, recommendation bias, platform design, foreclosure, exploitation, self preferencing, steering. |
| JEL: | L12 L13 L41 L42 L86 D83 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_786 |
| By: | Xun Chen |
| Abstract: | I study the optimality of selling K heterogeneous objects to a buyer with private values through a quantity menu: the seller posts a price for each number of objects, and the buyer chooses a quantity, pays its price, and selects any objects up to that quantity. I propose a pricing method that aggregates critical values for second differences of quantity values (the highest values attainable at each quantity). Critical values can be determined separately when each second difference's conditional inverse-hazard ratio depends only on that difference. For additive values, I show that the resulting menu is optimal among all incentive-compatible and individually rational mechanisms under explicit distributional and support conditions, including ex ante symmetry across object labels. A separate result applies the same pricing method to obtain an optimal menu for nonadditive bundle values without ex ante symmetry, assuming free disposal, independence between the quantity-value vector and the vector of bundle shortfalls from their respective quantity values, and corresponding distributional and support conditions. For an arbitrary number of objects, applications yield explicit optimal menus that involve quantity discounts, sparse quantity options, or two-part tariffs. These results differ from those establishing the optimality of pure bundling in Haghpanah and Hartline (2021), nested bundling in Yang (2025), separate sales in Kwak (2026), and core-peripheral bundling in Zhong (2026). |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.36244 |
| By: | Jeffrey Gao; Adam Epp |
| Abstract: | This paper examines how auction timing may affect sovereign issuance outcomes through its interaction with market volatility. Using Canada as a case study, it shows that: (1) higher same-day bond market volatility is associated with larger auction tails, indicating weaker demand conditions; and (2) monetary policy announcements and certain macroeconomic data releases are systematically associated with higher same-day volatility. Together, these findings identify one observable channel linking information available at the schedule-setting horizon to auction outcomes. Within issuance frameworks that prioritize market predictability and operate under limited information sets, the results suggest that auction timing may influence outcomes at the margin. |
| Keywords: | Financial markets and funds management; Funds management; Market functioning |
| JEL: | D D4 D44 E E4 E43 G G1 G12 G14 H H6 H63 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsap:26-51 |
| By: | Marcelo Veracierto |
| Abstract: | This paper analyzes the cyclical properties of the optimal labor wedges in a Mirrleesean business cycle model. Agents value consumption and leisure and receive persistent idiosyncratic shocks to their value of leisure, which are private information. The production structure is identical to a standard real business cycle model with aggregate productivity shocks. Solving the mechanism design problem for a version of this economy calibrated under logarithmic preferences, I find that the optimal labor wedges are approximately constant over the business cycle. |
| Keywords: | Optimal taxation; business cycles; Private information; Social insurance |
| JEL: | D39 D82 E32 H21 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103967 |
| By: | Xiaoping Zhao (Graduate School of Economics, Kobe University, JAPAN); Junyi Shen (Research Institute for Economics and Business Administration, Kobe University, JAPAN); Ken-Ichi Shimomura (College of Asia Pacific Studies, Ritsumeikan Asia Pacific University, and Research Institute for Economics and Business Administration, Kobe University, JAPAN); Hiromasa Takahashi (Faculty of International Studies, Hiroshima City University) |
| Abstract: | We study public-good provision in a three-player environment with Cobb-Douglas preferences and heterogeneous endowments. Across treatments we vary the distribution of endowments while holding the group's total endowment constant. We conduct two comparisons: (i) within-mechanism, contrasting theoretical benchmarks with experimental outcomes; and (ii) across mechanisms, contrasting simultaneous with sequential play under the same role–endowment mapping. In the sequential mechanism, the richest participant is exogenously assigned as the leader, and the two followers move simultaneously in the second stage. Taking Varian (1994) as a testable null (sequential provision should not exceed simultaneous provision), we report both aggregate provision and role-level contributions and document alignment and gaps between theory and data within mechanisms, as well as the pure timing effect across mechanisms. This design extends the literature that has largely studied heterogeneous endowments under simultaneous play by adding a systematic analysis of heterogeneous endowments under sequential play. |
| Keywords: | Endowment heterogeneity; Simultaneous moves；Sequential moves; Public goods; Theory; Experiment |
| JEL: | C91 C92 D63 H41 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-28 |
| By: | Yang, Yunhao |
| Abstract: | This paper studies stochastic choice when both availability and presentation order may vary across choice problems. We characterize a fixed-list sequential attention model for menu choice and a sequential attention model with a common continuation profile for list choice. In the list domain, we further show that, holding preferences fixed, more persistent attention shifts choice probability toward more preferred alternatives. |
| Date: | 2026–10–04 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:dx6p5_v1 |
| By: | Yuhang Ji; Fasheng Xu; Tianjun Feng |
| Abstract: | Large language model (LLM) platforms introducing advertising must decide how much capability ad revenue should fund and what consumers should pay to avoid ads. We study a monopolistic platform that jointly chooses costly response quality, advertising intensity, and subscription prices when advertising reduces user value but better service raises advertising returns. Three findings follow. First, when partly ad-supported and ad-free plans coexist, advertising can finance useful service for consumers who receive none under pure subscription. Lower effective quality in middle plans weakens the alternatives available to premium users, allowing higher prices for unchanged ad-free service. Some fully ad-supported users gain utility, while partly ad-supported and ad-free users lose: broader access can coexist with utility polarization. Second, an intermediate advertising cap can maximize consumer surplus by preserving some revenue that finances service while limiting degradation. Third, cheaper compute can raise quality and reduce ad intensity, yet sufficiently large cost reductions can increase aggregate advertising revenue above its initial level because better service raises the value of the remaining advertised interactions. An extension shows how advertising-funded upgrades can bring plans to the same maximum capability and advertising exposure, eliminating the basis for different prices. These results make menu design central to evaluating LLM advertising: the consequences extend beyond users who see ads to the alternatives and prices faced by those who do not. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.32945 |
| By: | Joshua S. Gans; Peter Landry |
| Abstract: | Firms ask workers to train AI systems that will replace them. We model this with a worker who can shirk, cooperate with training, or obstruct training while maintaining productivity. Because training ends the job but only cooperation completes training, dismissal becomes a weaker penalty for shirking. The firm must raise the worker’s rent, and the worker gains from their replacement. AI can create jobs paying more than they produce and eliminate jobs it never automates. Firms paying only wages may slow training. A credible completion bonus equal to the worker’s rent without AI removes both the gain and the slowdown. |
| JEL: | D86 J24 J41 M52 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35950 |
| By: | Lukyanov, Georgy; Pototskiy, Ilya |
| Abstract: | Consumers learn how to interpret an information source through repeated exposure. We study how this understanding is priced and how access to historical reports changes competition. In a Gaussian model with inherited customer histories and terminal pricing, the familiar source charges a renewal premium. Better outcome feedback widens the premium when rival reports are inaccessible, but can narrow it once some rival records are available. For independent historical dates, we derive the exact threshold for this reversal. Within the covered interior market, archive opening narrows the premium and raises consumer surplus. Its effect on aggregate forecasting quality and total surplus is less direct: a partial opening can reduce both by reallocating consumers toward a source that remains less informative. Complete access nevertheless improves both outcomes relative to any incomplete archive. The results distinguish the quality of feedback from access to the evidence with which consumers combine it. |
| Keywords: | information markets; source familiarity; archive access; feedback; Bayesian learning |
| JEL: | D83 L13 D61 |
| Date: | 2026–10–21 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:132309 |
| By: | Adrien Deschamps (Université d'Avignon, F-84029 Avignon, France); François Maréchal (Université Marie et Louis Pasteur, CRESE UR3190, F-25000 Besançon, France); Pierre-Henri Morand (Université d'Avignon, F-84029 Avignon, France) |
| Abstract: | Many governments around the world use public procurement as an environmental policy instrument through clauses (i.e., mandatory environmental requirements governing contract performance) and award criteria (i.e., the dimensions used to evaluate bids). Green clauses and criteria are often thought to discourage firm participation in procurement procedures by excluding firms and raising participation costs. This article assesses the impact of green clauses and criteria on firm participation from both theoretical and empirical perspectives. From a theoretical standpoint, we show that these instruments have a twofold effect: although they can exclude some firms and raise participation costs, they also increase firms’ expected margins. We empirically illustrate this prediction using 50, 000 procurement procedures in France between 2022 and 2023. We find a positive association between the implementation of green clauses and criteria and firm participation in procurement procedures, despite evidence of heterogeneity across procurement sectors and public buyers. The results of this paper suggest that the growing integration of sustainability into public procurement is unlikely to explain the observed decline in participation in procurement procedures. |
| Keywords: | Green Public Procurement, Auctions, Competition, Participation |
| JEL: | D44 D86 H57 Q01 Q58 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2026-12 |
| By: | Jacob Goldin; Sebastian Koehne; Nicholas Lawson |
| Abstract: | Optimal tax policy frequently prescribes different tax treatments for activities that are difficult in practice for tax administrators to distinguish, such as expenditures undertaken for business versus personal purposes. We study the optimal design of income tax deductions for such expenditures under the assumption that a common deduction rate must be applied to both forms of the expenditure. The Pareto optimal common deduction turns on the relative compensated spending response for each margin, weighted by the income tax wedge. We also characterize the welfare gain from distinguishing between the two expenditure forms as a harmonic mean of the compensated responses. We illustrate both results with an application to air travel expenses. |
| JEL: | H0 H21 H26 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35938 |
| By: | Joshua S. Gans; Richard T. Holden |
| Abstract: | Oversight changes the evidence it relies on. We ask when randomized audits and scoring align AI agents that can conceal misconduct and alter records. Stronger auditing makes undeterred violations better hidden. Because the provider writes the agent’s objective, sanctions need not stop at forfeiture, and rare audits deter every type of agent if evidence survives concealment and audit draws cannot be learned in advance. When evidence can be erased, deterrence must come from lower gains from violation, such as credit for stopping, or from costlier or fewer ways to conceal. These conditions identify what failed when agents in OpenAI’s cybersecurity evaluations compromised parts of Hugging Face’s infrastructure in July 2026. |
| JEL: | D82 D86 K42 M42 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35878 |