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on Economic Design |
| By: | Anton Kolotilin; Alexander Wolitzky |
| Abstract: | We study many-to-one matching with transfers and peer effects, such as matching workers to firms, students to schools, residents to neighborhoods, or consumers to status goods. With flexible prices (as in the labor market), competitive equilibrium exists and is efficient under general conditions. We characterize when workforces are segregated by skill and matched to firms in a positively assortative manner. In general, equilibrium features alternating intervals of workforce segregation and compression (mixing). Comparative statics characterize when workforces are more segregated or more compressed, and when profits and wages are more or less unequal. With uniform prices (as in school or neighborhood choice), the value generated by peer effects accrues to schools rather than students, and equilibrium can be excessively segregated. Our model generalizes both assignment models (optimal transport) and Bayesian persuasion. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.30879 |
| By: | Irene Aldridge |
| Abstract: | This paper proposes a computationally efficient mechanism for multi-dimensional matching markets where agents report preferences over object features rather than complete utility assessments. We use Singular Value Decomposition (SVD) to identify the principal direction of variation in feature space and match agents to objects along this dimension, reducing a complex multi-dimensional problem to an effectively one-dimensional problem solvable in $O(N \log N)$ time. We show that when data exhibit low effective dimensionality, our mechanism approximately maximizes Nash Social Welfare, satisfies distributional truthfulness, and achieves symmetry. We establish a novel connection between Nash Social Welfare and Geometric Distributionally Robust Optimization, providing robustness guaranties. Numerical experiments demonstrate that our approach achieves 99\% optimal welfare while running three orders of magnitude faster than direct optimization. The framework applies naturally to school choice, labor markets, and course allocation, where feature-based elicitation reduces the cognitive burden on agents. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.22865 |
| By: | Kenzo Imamura; Yasushi Kawase |
| Abstract: | Random allocations are widely used to handle ties and indifferences in two-sided environments. In such environments, commonly used procedures such as random tie-breaking may fail to ensure stability and fairness from an ex ante perspective. We show that when agents have discrete concave (M$^\natural$-concave) valuations, there exists an ex ante stable and fair allocation. To establish this result, we relate our framework to the model of stability introduced by Alkan and Gale. In particular, we show that ex ante stable and fair fractional allocations are exactly characterized as Alkan--Gale stable outcomes under choice functions induced from concave closures together with a symmetric strictly convex tie-breaking rule. We further prove that any ex ante stable fractional allocation can be decomposed into a lottery over stable deterministic allocations, using a generalization of the Birkhoff--von Neumann theorem. Finally, we study a setting that does not rely on cardinal valuations and instead assumes ordinal preferences. Within this ordinal framework, we establish the existence of an ex ante stable and fair fractional allocation. This setting is formulated within the matching-with-contracts framework under matroid constraints. The resulting class includes existing models, such as one-to-many random allocation with responsive choice correspondences, and captures a wide range of applications, including controlled school choice with lotteries. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.18574 |
| By: | Abinash Panda; Anup Pramanik |
| Abstract: | We study obviously strategy-proof implementation in the framework of social choice over acts introduced by Bahel and Sprumont (2020). We characterize the class of unanimous social choice functions that are implementable via obviously strategy-proof mechanisms. Our main result shows that a unanimous social choice function is obviously strategy-proof implementable if and only if it is dictatorial. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2605.30515 |
| By: | Wentao He; Biaoshuai Tao |
| Abstract: | We consider the fair division problem of indivisible chores and resolve the long-standing open problem for the existence of EFX allocations with additive cost functions. We show that, even for tri-valued additive cost functions, for every $n\geq 4$, there exists an instance with $n$ agents where no EFX allocation exists. Our counterexample only uses three types of chores, which is also tight on the number of types, as an EFX allocation is known to exist for two types of chores. We then consider bi-valued instances. We show that, for every $n\geq 4$, there exists an instance with $n$ agents where every EFX allocation is not Pareto-optimal. This is also the first example showing the incompatibility of EFX and Pareto-optimality when the costs of items are positive: existing examples showing the incompatibility of EFX and Pareto-optimal exploit items with $0$ costs. Our result shows such an example exists even for bi-valued instances. The number of agents $n$ is also tight: for $n\leq 3$, it is known that EFX is compatible with Pareto-optimality. Finally, we also show that an EFX allocation is guaranteed to exist for $n=4$. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.08872 |
| By: | Niemann, Rainer; Rohlfing-Bastian, Anna |
| 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:zbw:safewp:341429 |
| By: | Patrick Becker; Felix Brandt; Satyanand Rammohan |
| Abstract: | We consider the random assignment problem with abstract continuous and convex preferences. In particular, we admit preference relations that are not constrained by independence or transitivity. By extending the Hylland--Zeckhauser pseudo-market mechanism, we show that weakly efficient and envy-free random assignments always exist. For preferences that can be represented via skew-symmetric bilinear (SSB) utility functions -- which generalize linear expected utility functions -- we prove the existence of efficient and approximately envy-free random assignments. Efficient and envy-free random assignments exist under a mild additional assumption on preferences. These findings have notable implications for ordinal random assignment, where ordinal preferences are extended to preferences over lotteries via the pairwise comparison (PC) extension. While the probabilistic serial rule and popular random assignments frequently and significantly violate PC-efficiency and PC-envy-freeness, respectively, random assignments that satisfy both conditions do exist. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.13730 |
| By: | Lorenzo Bozzoli (Toulouse School of Economics); Guillaume Pommey (DEF, University of Rome "Tor Vergata") |
| Abstract: | We study agency contracts where a project owner (principal) privately learns her opportunity cost of continuing the relationship after the agent’s effort is sunk. The principalcontrols the design of termination rights and faces a trade-off between preserving incentives and retaining exit flexibility. Even without legal constraints, fully flexible (at-will), fully rigid (lock-in), and intermediate contracts offering partial security and compensation can all arise at equilibrium. While some contractsmay appear to protect the agent, they are always socially inefficient, justifying targeted legal constraints on termination rights. In particular, at-will contracts always under-secure the agent and under-enforce the project and can be banned on efficiency grounds. Inefficiencies also include excessive termination payments and over-securing, suggesting both toomuch and too little flexibility distort outcomes. Finally, we characterize aminimalmandatory termination fee, as commonly seen in employment protection laws, that partially restores efficiency |
| Keywords: | Moral Hazard, Termination rights, Severance Pay, Commitment |
| JEL: | D86 J33 J65 |
| Date: | 2026–06–16 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:621 |
| By: | Mohamed, Ahmed Ezzeldin (Toulouse School of Economics); Smith, Craig Damian |
| Abstract: | This article discusses real-world projects using algorithms to match resettled refugees with sponsors and services. It argues that ethically informed algorithmic matching can support larger-scale and better-informed resettlement while avoiding simplistic techno-sceptical or techno-optimistic framings. The article emphasizes the dual-use function of technology in international mobility and the importance of ethical design. |
| Date: | 2026–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:y9r7w_v1 |
| By: | Andrew Koh; Sivakorn Sanguanmoo |
| Abstract: | We study optimal technology regulation when private learning occurs both through doing (scaling up the technology) and through waiting (as time passes). We show that an adaptive speed limit -- a cap on the rate at which the technology can increase per-unit time -- delivers optimal worst-case guarantees over all learning processes and/or preferences, and is the only time-consistent mechanism that does so. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.01424 |
| By: | Alex Chan |
| Abstract: | Risk adjustment is a payment mechanism, not only a prediction problem. I extend optimal risk adjustment to dynamic insurance markets in which plans capture future residuals from persistent risk. Under an efficiency criterion, payments should reflect expected profits and losses over the enrollee relationship on margins plans control, not only one-year spending predictions. A finite-cell model separates selection, health production, and manipulable measurement. The framework implies that annual recalculation can tax prevention, high-R² prediction can reduce welfare, and lagged claims anchors are useful only with gaming safeguards. |
| JEL: | C61 D47 D80 D82 I1 I11 I13 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35325 |
| By: | Yan Dai; Maryam Farboodi; Negin Golrezaei; Sepehr Shahshahani |
| Abstract: | How can we design a market of human-generated content for use in training AI models that both enables technological progress and preserves individual incentives for high-quality content creation? Existing approaches take polar positions: a "free-for-all" model based on fair use and a "strong intellectual property rights" model. We show that both fail: Free-for-all does not compensate creators, and -- by modeling as a static Stackelberg game -- strong intellectual property rights also underpower creative incentives. We find this especially true for more innovative creators, a phenomenon we term the "originality penalty." Extending this insight to a dynamic model, we find another market failure undermining AI model performance, even for an initially good model: Such a model induces greater reliance by humans on AI-assisted creation, resulting in homogenized content feeding back into training, which degrades the model performance -- a "curse of precision." We further propose a market design with a data intermediary internalizing cross-creator externalities and subsidizing innovative contributions, thereby restoring efficiency. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.12260 |
| By: | Guillaume Pommey (DEF, University of Rome "Tor Vergata") |
| Abstract: | I characterize the optimal regulation of a firm constituted by potential judgment-proof agents. I investigate two cases: (i) A principal hires an agent to undertake a prevention effort on their behalf; (ii) Two agents are jointly responsible of undertaking a prevention effort. In both cases, agents are in charge of exerting an unobservable level of safety care to reduce the probability of an accident that may occur due to the firm risky activity. Agents are called judgment proof when their final wealth is not enough to pay for the monetary penalties imposed by the regulator. I show that the standard Equivalence Theorem, stating that the distribution of penalties among injurers is irrelevant, does not hold in this context. Instead, in a principal-agent firm, the optimal regulation requires to fully target the principal if the agent can be subject to judgment proofness. In a two-agent firm, the optimal regulation consists in an almost equal sharing of penalties among agents. |
| Keywords: | Moral Hazard, Regulation, Limited liability, Judgment Proofness |
| JEL: | K13 K32 G33 D86 |
| Date: | 2026–06–16 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:622 |
| By: | Daniel Baumgarten (Department of Economics, Ludwig-Maximilian University Munich); Sergei Snegirev; Barbara Schöndube-Pirchegger (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | This paper studies how inequity aversion affects the optimal incentive contract in a multi-task principal–agent model with a non-congruent performance measure. We assume that the agent is inequity averse relative to the principal. The agent is envious if he/she expects to get less than the principal and feels guilty, if he/she expects to be paid more. The agent performs two equally productive tasks, but the contractible performance measure is more sensitive to one task than the other, generating a congruity problem. We find that it is never optimal to offer a contract, which leaves the agent envious. Rather, in equilibrium the principal offers either an equal-pay contract or a contract that leaves the agent feeling guilty. For a lower range of the agent’s reservation utility, the only feasible contract is an equal-pay contract. It requires a distortion of incentives and thus results in agency costs from avoiding inequity in addition to agency costs from incongruity. It follows that the principal would prefer to hire a purely self-interested agent as opposed to an inequity averse one. For an upper range of reservation utilities, a contract that leaves the agent feeling guilty is feasible and preferred to an equal-pay contract. This contract results in costs from inequity, but also reduces costs from incongruity. If the first effect dominates the second, hiring an inequity averse agent again turns out to be detrimental. However, we identify scenarios in which the second effect dominates and hiring an inequity averse agent benefits the principal. Acknowledging that an agent might derive extra utility from being paid more than the principal, rather than to feel guilty, we extend our analysis to capture a status-seeking agent. We find that an agent with such preferences requires less pay but his/her effort choice amplifies the congruity problem. Depending on which of the two effects dominates, the principal either prefers to hire a self-interested or a status-seeking agent. |
| Keywords: | moral hazard problem, multi task, social preferences, inequity aversion |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:mag:wpaper:26014 |
| By: | Aridor, Guy; Gonçalves, Duarte; Kluver, Daniel; Kong, Ruoyan; Konstan, Joseph |
| Abstract: | We conduct a field experiment on a movie-recommendation platform to investigate whether and how online recommendations influence consumption choices. Using a within-subjects design, our experiment measures the causal effect of recommendations on consumption and decomposes the relative importance of two economic mechanisms: expanding consumers' consideration sets and providing information about their idiosyncratic match value. We find that the informational component exerts a stronger influence -- recommendations shape consumer beliefs, which in turn drive consumption, particularly among less experienced consumers. Our findings and experimental design provide valuable insights for the economic evaluation and optimisation of online recommender systems. |
| Keywords: | Online recommendations; Recommender system; Information acquisition; Field experiment; Platforms |
| JEL: | D83 D47 D12 L15 M37 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21584 |