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on Economic Design |
| By: | Laura Doval; Alex Smolin |
| 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 state-independent 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. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.17858 |
| By: | Beuermann, Diether; Pariguana, Marco |
| Abstract: | Choosing a school is one of the most important decisions parents make with regards to their children's human capital, yet they often face restricted choice sets. We study parental preferences over peer quality and school effectiveness in the centralized education market of Barbados, where admissions are based on a one-shot exam and parents face a binding cap on the number of schools to which they can apply. Exploiting a policy reform that further tightened this cap, we show that parents responded by omitting the most selective schools from their applications, underscoring how market design shapes application behavior. We then estimate parental preferences for school effectiveness measured by impacts on test scores and adult wages as well as peer quality. Preference estimates under the assumption of truth-telling indicate that parents do not value effectiveness after controlling for peer quality. In contrast, preference estimates under the assumption of market stability, which allows for strategic behavior, show that parents place substantial weight on both effectiveness and peer quality. This divergence arises because the most selective schools are also the most effective, forcing parents to trade off effectiveness against admission probabilities. |
| JEL: | I21 I24 I28 J24 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14455 |
| By: | Dinko Dimitrov; Dipjyoti Majumdar |
| Abstract: | We study the implementability of stable matchings in a two-sided market model with one-sided incomplete information. Firms' types are publicly known, whereas workers' types are private information. A mechanism generates a matching and additional announcements to the firms at each report profile of workers' types. When agents' preferences are increasing in the types of their matched partner, we show that the assortative matching mechanism which publicly announces the entire set of reported types is incentive compatible. Furthermore, any mechanism that limits information disclosure to firms' lower contour sets of reported types remains incentive compatible. However, when information is incomplete on both sides of the market, assortative matching is no longer implementable. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.18764 |
| By: | Muhammed Ceesay; Nicola Doni; Domenico Menicucci |
| Abstract: | This paper is about a procurement auction setting with two sellers in which before the auction seller i can make an investment which improves the ex ante probability distribution of his cost; seller j observes seller i's investment decision before bidding occurs. Under somewhat restrictive assumptions on the pre- and the post-investment cost distributions, Arozamena and Cantillon (2004) prove that in the first price auction seller i's investment induces seller j to bid more aggressively. This negative strategic effect contributes to AC's result that the investment incentive for seller i is stronger in the second price auction than in the first price auction. We prove that under weaker but economically significant assumptions, and discretely distributed costs, an investment by seller i may actually induce seller j to bid less aggressively in the first price auction (i.e., the strategic effect may be positive), and the investment incentive may be stronger in the latter auction. Moreover, in some cases the buyer prefers the first price auction precisely because it provides a stronger investment incentive, even though the second price auction is preferable when no investment is possible. We prove that the two auctions are not equivalent in a setting in which each seller has the option to invest and the sellers are ex ante symmetric, and that the second price auction gives a stronger investment incentive to the initially stronger seller than to the other seller (this increases asymmetries), but such result does not necessarily hold in the first price auction. |
| Keywords: | Procurement Auctions, First-Price Auction, Second-Price Auction, Pre-Auction Investment, Strategic Effect, Auction Ranking. |
| JEL: | D44 D82 L15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2026_01.rdf |
| By: | Hiroto Sato; Ryo Shirakawa |
| Abstract: | We develop a simple model of a designer who manages a learning structure. Agents have partial private information about a common-value good. The designer wishes to allocate the good to as many agents as possible without using monetary transfers. We formulate this environment as a mechanism design problem that nests social learning models and characterize an optimal mechanism under general distributions over private information. The optimal mechanism can be summarized by two parameters: one purely adjusts the allocation probability, while the other governs the amount of learning implicitly induced by allocation. Although the designer always prefers to allocate the good, managing incentives for learning leads the optimal mechanism to withhold allocation even when allocation is socially efficient. Our analysis brings the perspective of managing learning structures to market design and introduces a mechanism design approach to social learning. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.20001 |
| By: | Ernesto Rivera Mora (University of Colorado, Boulder); Philipp Strack (Yale University) |
| Abstract: | We study mechanism design for a sophisticated agent with non-expected utility (EU) preferences. We show that the revelation principle holds if and only if all types are EU maximizers: if at least one type is a non-EU maximizer, randomizing over dynamic mechanisms generates a strictly larger set of implementable allocations than using static mechanisms. Moreover, dynamic stochastic mechanisms can fully extract the private information of any type who doesn't have uniformly quasi-concave preferences without providing that type any rent. Full-surplus extraction is possible in a broad variety of non-EU environments, but impossible for types with concave preferences. |
| Date: | 2025–12–30 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2481 |
| By: | Dirk Bergemann (Yale University); Marek Bojko (Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study mechanism design in environments where agents have private preferences and private information about a common payoff-relevant state. In such settings with multi-dimensional types, standard mechanisms fail to implement efficient allocations. We address this limitation by proposing data-driven mechanisms that condition transfers on additional post-allocation information, modeled as an estimator of the payoff-relevant state. Our mechanisms extend the classic Vickrey-Clarke-Groves framework. We show they achieve exact implementation in posterior equilibrium when the state is fully revealed or utilities are affine in an unbiased estimator. With a consistent estimator, they achieve approximate implementation that converges to exact implementation as the estimator converges, and we provide bounds on the convergence rate. We demonstrate applications to digital advertising auctions and AI shopping assistants, where user engagement naturally reveals relevant information, and to procurement auctions with consumer spot markets, where additional information arises from a pricing game played by the same agents. |
| Date: | 2025–12–23 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2418r2 |
| By: | Bonifacio Agustín Germán; Amieva Adriana; Neme Pablo |
| Abstract: | We examine the problem of assigning teachers to public schools over time when teachers have tenured positions and can work simultaneously in multiple schools. To do this, we investigate a dynamic many-to-many school choice problem where public schools have priorities over teachers and teachers hold path-independent choice functions selecting subsets of schools. We introduce a new concept of dynamic stability that recognizes the tenured positions of teachers and we prove that a dynamically stable matching always exists. We propose the Tenure-Respecting Deferred Acceptance (TRDA) mechanism, which produces a dynamically stable matching that is constrained efficient within the class of dynamically stable matchings and minimizes unjustified claims. To improve efficiency beyond this class, we also propose the Tenure-Respecting Efficiency-Adjusted Deferred Acceptance (TREADA) mechanism, an adaptation of the Efficiency-Adjusted Deferred Acceptance mechanism to our dynamic context. We demonstrate that the outcome of the TREADA mechanism Pareto-dominates any dynamically stable matching and achieves efficiency when all teachers consent. Additionally, we examine the issue of manipulability, showing that although TRDA and TREADA mechanisms can be manipulated, they remain non-obviously dynamically manipulable under specific conditions on schools’ priorities. |
| JEL: | D71 C78 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4780 |
| By: | Yeon-Koo Che; Julien Grenet; Yinghua He |
| Abstract: | This chapter surveys the application of matching theory to school choice, motivated by the shift from neighborhood assignment systems to choice-based models. Since educational choice is not mediated by price, the design of allocation mechanisms is critical. The chapter first reviews theoretical contributions, exploring the fundamental trade-offs between efficiency, stability, and strategy-proofness, and covers design challenges such as tie-breaking, cardinal welfare, and affirmative action. It then transitions to the empirical landscape, focusing on the central challenge of inferring student preferences from application data, especially under strategic mechanisms. We review various estimation approaches and discuss key insights on parental preferences, market design trade-offs, and the effectiveness of school choice policies? |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.20353 |
| By: | Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Cat—lica de Chile); Stephen Morris (Massachusetts Institute of Technology) |
| Abstract: | How should a buyer design procurement mechanisms when suppliers' costs are unknown, and the buyer does not have a prior belief? We demonstrate that notably simple mechanisms Ñ those that share a constant fraction of the buyer utility with the seller Ñ allow the buyer to realize a guaranteed positive fraction of the efficient social surplus across all possible costs. Moreover, a judicious choice of the share based on the known demand maximizes the surplus ratio guarantee that can be attained across all possible (arbitrarily complex and non-linear) mechanisms and cost functions. Results apply to related nonlinear pricing and optimal regulation problems. |
| Date: | 2025–12–08 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2479 |
| By: | Marina Halac (Yale University); Elliot Lipnowski (Columbia University); Daniel Rappoport (University of Chicago) |
| Abstract: | We study the design of a contest in which a designer uses performance-contingent rankings and information disclosure to motivate an agent to exert effort. The agent's ability is unknown, and the designer's objective is to maximize the agent's expected effort. We show that the optimal ranking is a simple "pass-fail" rule, and the optimal information policy provides the agent with the minimum information necessary to keep them motivated. The results have implications for the design of workplace evaluations, academic grading, and other competitive environments where relative performance is used to incentivize effort. |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2480 |
| By: | Gabrielli Maria Florencia; Aryal Gaurab; Fajnzilber Eduardo; Willington Manuel |
| Abstract: | We propose and estimate a model of demand and supply of annuities. To this end, we use rich data from Chile, where annuities are bought and sold in a private market via a two-stage process: rst-price auctions followed by bargaining. We model rms with private information about costs and retirees with di erent mortalities and preferences for bequests and rms' risk ratings. We nd substantial costs and preference heterogeneity, and because there are many rms, the market performs well. Counterfactuals show that simplifying the current mechanism with English auctions and\shutting down" risk ratings increase pensions, but only for high savers. |
| JEL: | D14 D44 D91 C57 J26 L13 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4804 |
| By: | Jussi Keppo; Yingkai Li |
| Abstract: | This paper studies optimal contract design in private market investing, focusing on internal decision making in venture capital and private equity firms. A principal relies on an agent who privately exerts costly due diligence effort and then recommends whether to invest. Outcomes are observable ex post even when an opportunity is declined, allowing compensation to reward both successful investments and prudent decisions to pass. We characterize profit maximizing contracts that induce information acquisition and truthful reporting. We show that three tier contracts are sufficient, with payments contingent on the agent's recommendation and the realized return. In symmetric environments satisfying the monotone likelihood ratio property, the optimal contract further simplifies to a threshold contract that pays only when the recommendation is aligned with an extreme realized return. These results provide guidance for performance based compensation that promotes diligent screening while limiting excessive risk taking. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.19405 |
| By: | Jason Allen; Ali Hortaçsu; Eric Richert; Milena Wittwer |
| Abstract: | Hedge funds have become increasingly active in Treasury markets, yet we have little evidence on how this shift has affected the market. We focus on the primary market, where the government issues its debt through auctions. Using over 20 years of data from Canadian Treasury auctions, we document dealers exiting and hedge funds entering. To evaluate the costs and benefits of this trend for debt issuance, we develop an auction framework with endogenous participation. We find that the expected gains from greater hedge fund participation, driven by increased competition, are smaller than the costs that arise because hedge funds—unlike dealers—do not participate regularly. Currently, dealer participation remains sufficiently strong that policies aimed at stabilizing participation have little effect on funding costs. |
| JEL: | D44 D47 G12 G28 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34646 |