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on Economic Design |
| By: | Bill Wang |
| Abstract: | In the Gale-Shapley model of two-sided matching, it is well known that for generic preferences, the outcomes for each side can vary dramatically in the male-optimal vs. female-optimal stable matchings. In this paper, we show that under a widely used characterization of similarity in rankings, even a weak correlation in preferences guarantees assortative matching with high probability as the market size tends to infinity. It follows that the men's average ranking of women and the women's average ranking of men are asymptotically equivalent in all stable matchings with high probability, as long as the market imbalance is not too extreme. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.24526 |
| By: | Eric Yan |
| Abstract: | High-stakes auctions are often preceded by nonbinding communication between bidders and the seller. Motivated by these practices, this paper examines a two-period model in which two bidders send private cheap talk messages to the seller about their valuations, and the seller decides in the second period whether to run a mechanism or take an outside option that disappears if she chooses to run the auction. The seller has commitment within any mechanism she chooses to run, but no commitment over how she uses any information communicated. Despite having potentially asymmetric posteriors after the communication stage, the seller cannot run discriminatory auctions in equilibrium. Under some natural restrictions, any bidder-symmetric perfect Bayesian equilibrium of this model is a threshold equilibrium where the seller runs a second-price auction with a single reserve if and only if both bidders are above the threshold. The seller is better off being able to commit to the restricted class of mechanisms where she must choose a single reserve price. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17733 |
| By: | Varun Bansal; Mihir Bhattacharya; Ojasvi Khare |
| Abstract: | We study the existence of stable matchings when agents have choice correspondences instead of preference relations. We extend the framework of Chambers and Yenmez (2017) by weakening the Path Independence assumption. For many-to-many markets, we show that stable matchings exist when choice correspondences satisfy Substitutability and a new General Acyclicity condition. We provide a constructive proof using a Grow or Discard Algorithm that iteratively expands or eliminates contracts until a strongly maximal Individually Rational set is reached. We provide an algorithm to obtain stable matchings in which rejected contracts are not permanently discarded, distinguishing our approach significantly from standard DAA-type algorithms. For one-to-one markets, we show that Path Independence alone does not guarantee stability. We introduce a replacement-based notion of stability and provide an algorithm that constructs stable matchings when choice correspondences satisfy Binary Acyclicity. JEL classification: C62, C78, D01, D47 Keywords: choice correspondences, substitutability, general acyclicity, many-to-many matching, matching with contracts, Grow or Discard algorithm, replacement stability, binary acyclicity. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.23038 |
| By: | Josu\'e Ortega; Gabriel Ziegler; R. Pablo Arribillaga; Geng Zhao |
| Abstract: | We study the distribution of envy in random matching markets under the Deferred Acceptance (DA) algorithm. Using tools from applied probability, we compute the expected number of proposing agents whom nobody envies and those who envy nobody. We obtain an exact finite-market expression for the former, based on a connection with the coupon collector problem, and asymptotic bounds for the latter. To put these quantities into perspective, we compare them to their counterparts under Random Serial Dictatorship (RSD): while RSD assigns a constant fraction of agents to their top choice, both DA and RSD leave exactly $H_n$ proposing agents unenvied in expectation. Our results show that these clearly unimprovable proposing agents constitute a vanishing fraction of the market. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.23385 |
| By: | Mikhail Freer; Thilo Klein; Josu\'e Ortega |
| Abstract: | We conduct the first laboratory school choice experiment in which parents-the relevant decision makers in the field-are the experimental subjects. We compare Deferred Acceptance (DA) with two manipulable but potentially more efficient alternatives: Efficiency-Adjusted Deferred Acceptance (EADA) and the Rank-Minimizing mechanism (RM). We find that all mechanisms are frequently manipulated, with no significant differences in truth-telling rates. Parents and students manipulate at similar rates, supporting the external validity of student-based experiments, though students make significantly more obvious errors, suggesting parents' deviations are more deliberate. Despite widespread manipulation, the predicted welfare-stability tradeoff largely survives: DA never produces Pareto-efficient allocations yet generates little justified envy; whereas RM delivers substantial efficiency gains at a meaningful stability cost. EADA occupies a middle ground: its efficiency gains over DA are modest and imprecisely estimated yet double justified envy. Higher cognitive ability is associated with more deviations, and under EADA with worse outcomes. While DA does not induce truth-telling, it is the only mechanism in which manipulation never pays off and rarely changes outcomes. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.24615 |
| By: | Parikshit De; Abinash Panda; Anup Pramanik |
| Abstract: | We study a public decision problem in which a finite society selects a public-good level from a closed interval. Agents either have single-peaked preferences or are completely indifferent over the interval; the latter capture abstention or a "none of the above" stance within the decision process. We study this augmented single-peaked domain. On this domain, we characterize the class of rules called target rules with a default. We show that onto-ness and pairwise strategy-proofness characterize this class of rules. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17772 |
| By: | Zi Yang Kang |
| Abstract: | This paper revisits the classic instrument choice problem in a setting with consumption externalities, through the lens of robust mechanism design. A regulator can implement any incentive-compatible policy but is uncertain about how individual demand is correlated with marginal externalities, and evaluates policies by worst-case welfare. The optimal policy is a quantity control: a floor for positive externalities and a ceiling for negative externalities. If the sign of the correlation is known, a uniform tax or subsidy can be optimal. The framework also applies to regulatory uncertainty and costly screening, providing a welfare-based explanation for the prevalence of non-price policies. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.15832 |
| By: | Mark Braverman; Jingyi Liu; Eric Xue; Chenghan Zhou |
| Abstract: | We study one-sided matchings with endowments in the absence of money. It is well-known that a competitive equilibrium may not always exist and that the strong core may be empty in this setting [Hylland and Zeckhauser, 1979]. We propose a generalization of competitive equilibria that associates each item with a multi-dimensional price. We show that this solution concept always exists and resides within the rejective core [Konovalov, 2005]. Rejective core stability is strictly stronger than weak core stability: allocations in the rejective core are elements of the weak core, but the opposite is not true. Moreover, we show that the rejective core always converges to the set of competitive equilibria with multi-dimensional prices as the economy grows, demonstrating core convergence in a setting without non-satiation. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17862 |
| By: | Etsusaku Shimada (Faculty of Policy Studies, Iwate Prefectural University) |
| Abstract: | This paper develops a structural theory of investment under dual incentive structures. Investment affects economic outcomes through two distinct channels. First, it increases aggregate protection against external threats and enlarges total feasible surplus through an increasing defense technology. Second, it improves relative standing within an allocation rule that redistributes the resulting surplus across agents. When investment operates through both channels, private and social incentives need not coincide. In a symmetric environment with monotone relative allocation, I show that equilibrium investment exceeds the social optimum whenever comparative screening intensity exceeds the critical ratio of marginal aggregate protection to average protected surplus. Overinvestment therefore does not arise because protection lacks social value; it arises because relative evaluation adds a positional component to private returns without increasing aggregate surplus. The paper further shows that transparency acts as an amplification parameter, while public standards mitigate escalation by reducing the granularity with which investment is translated into relative ranking. The analysis unifies ideas from contests, status competition, public information, and incentive design, and identifies a general mechanism of protection-compatible escalation. |
| Keywords: | Relative Allocation, Excess Investment, Positional Incentives, Transparency, Screening, Regulatory Design |
| JEL: | D60 D82 D83 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1126 |
| By: | Alma Cohen; Alon Klement; Zvika Neeman; Eilon Solan |
| Abstract: | In many institutional settings, $k$ items are selected with the goal of representing the underlying distribution of claims, opinions, or characteristics in a large population. We study environments with two adversarial parties whose preferences over the selected items are commonly known and opposed. We propose the Quantile Mechanism: one party partitions the population into $k$ disjoint subsets, and the other selects one item from each subset. We show that this procedure is optimally representative among all feasible mechanisms, and illustrate its use in jury selection, multi-district litigation, and committee formation. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.24727 |
| By: | Simon Finster; Bernhard Kasberger; Simon R\"utten |
| Abstract: | In European day-ahead electricity markets, carbon allowance costs passed through by marginal fossil plants raise consumer expenditure and generate inframarginal rents for non-emitting generators. We propose a settlement modification: when the zonal day-ahead price exceeds a threshold, non-emitting generation is remunerated at the clearing price minus a fixed CO2 proxy deduction, while all other units continue to receive the uniform price. The mechanism thus reallocates a part of the inframarginal rents to consumers. Using hourly data we estimate static average expenditure reductions of about 8.5% in Austria and 4.7% in Germany in 2025. We discuss bidding incentives around the threshold, interactions with Contracts for Difference, implementation in coupled bidding zones, and a gas-cost variant for the 2022 energy crisis. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.25874 |
| By: | Charles Po-Cheng Huang |
| Abstract: | This paper examines the optimal contracts in a two-dimensional screening model where one dimension(group identity) is verifiable by agents but not falsifiable. A principal offers contracts to agents who differ in cost types and group membership. Motivated by the United States Federal policy, Work Opportunity Tax Credit, the principal receives tax benefits for hiring agents from protected groups. Under the assumption that the protected agents tend to have higher cost types, the optimal contract induces full separation across both dimensions: agents reveal the cost type and the group identity through contract choice. Furthermore, the principal is willing to hire the trait agents with a higher cost threshold than the non-trait agents, and this threshold increases with the tax credit. Conversely, when the protected agents tend to have lower cost types, the optimal design without tax credits pools groups while separating by cost type. These results demonstrate that both affirmative action and non-discrimination can be optimal depending on the cost distribution ordering across groups. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.00615 |
| By: | Steve Cicala; David Hémous; Morten Olsen |
| Abstract: | We propose a new policy instrument that leverages adverse selection when Pigouvian poli- cies are infeasible or undesirable. Our policy gives firms the option to pay a tax on their voluntarily disclosed emissions, or an output tax based on the average emissions among undis- closed firms. We derive sufficient statistics formulas to calculate the welfare gains relative to an output tax, and an algorithm to implement the policy with minimal information. In an application to methane emissions from oil and gas fields, our policy generates significant welfare gains. Finally, we extend our analysis to the design of international carbon policy. |
| JEL: | D82 H2 Q54 L51 H87 K32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:zur:econwp:491 |
| By: | Rainer Niemann; Anna Rohlfing-Bastian |
| Abstract: | This paper analyzes how ESG-linked executive compensation interacts with carbon taxation in a multitask principal-agent framework. A risk-neutral principal with financial and environmental preferences incentivizes a risk-averse manager to exert productive and abatement effort while facing an exogenous carbon tax on emissions. We show that, in the absence of ESG incentives, carbon taxes reduce emissions mainly by lowering production. In contrast, ESG-linked compensation shifts emission reductions toward increased abatement, allowing the principal to raise expected payoff while simultaneously reducing emissions, both with and without carbon taxation. However, carbon taxes narrow the range of feasible ESG preferences and, at high levels, may induce excessive abatement, potentially leading to negative net emissions. Our results highlight the importance of aligning internal incentive design with external climate regulation. The interplay of ESG compensation and carbon taxes should also be considered from a regulatory perspective. |
| Keywords: | ESG-linked executive compensation, carbon taxation, environmental regulation, climate policy, managerial incentives |
| JEL: | D82 M52 Q58 Q54 H25 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12582 |
| By: | Zhonghong Kuang; Sanxi Li; Yi Liu; Yang Yu |
| Abstract: | In light of prevailing data regulations, consumer mobility across diverse markets inherently endogenizes market segmentation. Considering such strategic interactions, we define a market segmentation as strategy-proof when no consumer (with positive measure) has an incentive to deviate to another market. We show that in every strategy-proof market segmentation, the producer surplus remains at the uniform monopoly level, and the consumer surplus is bounded between the buyer-optimal level and the uniform monopoly level. Remarkably, no consumer is worse off than in the case of a uniform monopoly. We also construct a family of strategy-proof segmentations to realize every possible welfare outcome. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.20609 |
| By: | Ruiwu Liu; Yangjian Zhu |
| Abstract: | Electric vehicles (EVs) require substantially longer refueling times than gasoline vehicles, which can generate severe congestion at charging stations when demand concentrates. We propose a two-stage allocation framework for EV charging networks. In Stage 1, a central coordinator determines station-level admission quotas to control worst-station delay using a queue-informed congestion metric. In Stage 2, given these quotas and feasibility constraints (e.g., reachability), the coordinator solves a utility-maximizing capacitated assignment to allocate EVs across stations. To keep Stage~2 tractable while capturing heterogeneous charging needs, we precompute each EV-station pair's optimal charging amount in closed form under a battery-capacity constraint and then solve a transportation/assignment problem. Finally, we introduce a reduced-form participation model to characterize adoption thresholds under network benefits, spillovers, and coordination costs. Numerical experiments illustrate substantial reductions in worst-case congestion with limited impact on average utility, and highlight scaling patterns as the number of stations increases. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.16202 |
| By: | Matteo Bizzarri |
| Abstract: | This paper models firm-to-firm trade in a production network as a set of double auctions. Firms have multilateral market power, namely, can affect prices in both input and output markets. The size and division of surplus are endogenous and depend only on technology, network position, and consumer preferences. The standard simplifying assumption of price-taking on input markets (unilateral market power) has systematic effects: it underestimates the final price and overestimates the surplus going upstream. These phenomena affect the model predictions for the welfare impact of mergers. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.21932 |