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on Economic Design |
| By: | Yeon-Koo Che; Andrew B. Choi |
| Abstract: | Allocation of goods and services often involves both stochastic supply and stochastic demand. Motivated by applications such as cloud computing, gig platforms, and blockchain auctions, we study the design of optimal selling mechanisms in an environment where buyers with private valuations arrive stochastically and are assigned goods that also arrive stochastically, and either buyers or goods can be held in a queue at costs until allocation. The optimal mechanism dynamically leverages competitive pressure across time by managing the queue of buyers and inventory of goods, using reserve prices that increase with the number of buyers in the queue and decrease with the number of items in inventory, and an auction to allocate the goods. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.22862 |
| By: | Hedyeh Beyhaghi; Linda Cai; Yiding Feng; Yingkai Li; S. Matthew Weinberg |
| Abstract: | We quantify the value of the monopoly's bargaining power in terms of competition complexity--that is, the number of additional bidders the monopoly must attract in simple auctions to match the expected revenue of the optimal mechanisms (c.f., Bulow and Klemperer, 1996, Eden et al., 2017)--within the setting of multi-item auctions. We show that for simple auctions that sell items separately, the competition complexity is $\Theta(\frac{n}{\alpha})$ in an environment with $n$ original bidders under the slightly stronger assumption of $\alpha$-strong regularity, in contrast to the standard regularity assumption in the literature, which requires $\Omega(n \cdot \ln \frac{m}{n})$ additional bidders (Feldman et al., 2018). This significantly reduces the value of learning the distribution to design the optimal mechanisms, especially in large markets with many items for sale. For simple auctions that sell items as a grand bundle, we establish a constant competition complexity bound in a single-bidder environment when the number of items is small or when the value distribution has a monotone hazard rate. Some of our competition complexity results also hold when we compete against the first best benchmark (i.e., optimal social welfare). |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.09291 |
| By: | Rodney Garratt; David Murphy; Travis D. Nesmith; Xiaopeng Wu |
| Abstract: | Central counterparties’ ability to hold successful default auctions is critically important to financial stability. However, due to the unique features of these auctions, standard auction theory results do not apply. We present a model of CCP default auctions that incorporates both the vital, but non-standard, objective of minimizing the likelihood it suffers reputationally damaging losses and the potential for information leakage to affect CCP members’ private portfolio valuations. This gives insight into the key question of how CCPs should select auction participants. In particular, we prove that an entry fee, by appropriately incentivizing some members not to enter the auction, can maximize the probability of auction success. The result is novel, both in auction theory and as a mechanism for CCP auction design. |
| Keywords: | Auctions; Central counterparties; CCPs; Default; Derivatives; Entry mechanism; Financial stablity; Systemic risk |
| JEL: | D44 D47 G13 G23 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:100033 |
| By: | Francisco Robles (Universitat de Barcelona); Marina Núñez (Universitat de Barcelona); Laura Robles (Competition Economists Group, Universitat de Barcelona) |
| Abstract: | This paper investigates (non-)manipulability properties and welfare effects of Walrasian equilibrium rules in object allocation problems with non-quasi-linear preferences. We focus on allocation problems with indivisible and different objects. The agents are interested in acquiring at most one object. We show that the minimum Walrasian equilibrium rule is the unique rule that is non-manipulable via monotonic transformations at the outside option among the set of Walrasian equilibrium rules. Analogously, we also show that the minimum Walrasian equilibrium rule is also the unique Walrasian equilibrium rule that is non-manipulable by pretending to be single-minded. On the domain of quasi-linear preferences, we introduce a novel axiom: welfare parity for uncontested objects. On this domain, this axiom is enough to characterize the minimum Walrasian equilibrium rule among the set of Walrasian equilibrium rules. |
| Keywords: | Strategy-proofness, monotonic transformations, Walrasian equilibrium |
| JEL: | D44 D47 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ewp:wpaper:478web |
| By: | Yan Liu; Ying Qin; Zihe Wang |
| Abstract: | The all-pay auction, a classic competitive model, is widely applied in scenarios such as political elections, sports competitions, and research and development, where all participants pay their bids regardless of winning or losing. However, in the traditional all-pay auction, players have no budget constraints, whereas in real-world scenarios, players typically face budget constraints. This paper studies the Nash equilibrium of two players with budget constraints across multiple heterogeneous items in a complete-information framework. The main contributions are as follows: (1) a comprehensive characterization of the Nash equilibrium in single-item auctions with asymmetric budgets and valuations; (2) the construction of a joint distribution Nash equilibrium for the two-item scenario; and (3) the construction of a joint distribution Nash equilibrium for the three-item scenario. Unlike the unconstrained all-pay auction, which always has a Nash equilibrium, a Nash equilibrium may not exist when players have budget constraints. Our findings highlight the intricate effects of budget constraints on bidding strategies, providing new perspectives and methodologies for theoretical analysis and practical applications of all-pay auctions. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.03291 |
| By: | Daniel Halpern; Ariel D. Procaccia; Warut Suksompong |
| Abstract: | The proportional veto principle, which captures the idea that a candidate vetoed by a large group of voters should not be chosen, has been studied for ranked ballots in single-winner voting. We introduce a version of this principle for approval ballots, which we call flexible-voter representation (FVR). We show that while the approval voting rule and other natural scoring rules provide the optimal FVR guarantee only for some flexibility threshold, there exists a scoring rule that is FVR-optimal for all thresholds simultaneously. We also extend our results to multi-winner voting. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.01395 |
| By: | Gregory Z. Gutin; Philip R. Neary; Anders Yeo |
| Abstract: | Consider a one-to-one two-sided matching market with workers on one side and single-position firms on the other, and suppose that the largest individually rational matching contains $n$ pairs. We show that the number of workers employed and positions filled in every stable matching is bounded from below by $\lceil\frac{n}{2}\rceil$ and we characterise the class of preferences that attain the bound. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.24637 |
| By: | Modibo K. Camara; Nicole Immorlica; Brendan Lucier |
| Abstract: | If people find it costly to evaluate the options available to them, their choices may not directly reveal their preferences. Yet, it is conceivable that a researcher can still learn about a population's preferences with careful experiment design. We formalize the researcher's problem in a model of robust mechanism design where it is costly for individuals to learn about how much they value a product. We characterize the statistics that the researcher can identify, and find that they are quite restricted. Finally, we apply our positive results to social choice and propose a way to combat uninformed voting. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.19570 |
| By: | Leo Kurata; Kensei Nakamura |
| Abstract: | This paper studies preference aggregation under uncertainty in the multi-profile framework introduced by Sprumont (2018, 2019) and characterizes a new class of aggregation rules that can address classical concerns about Harsanyi's (1955) utilitarian rules. Our class of aggregation rules, which we call relative fair aggregation rules, is grounded in three key ideas: utilitarianism, egalitarianism, and the 0--1 normalization. These rules are parameterized by a set of weights over individuals. Each ambiguous alternative is evaluated by computing the minimum weighted sum of the 0--1 normalized utility levels within that weight set. For the characterization, we propose two novel key axioms -- weak preference for mixing and restricted certainty independence -- developed using a new method of objectively randomizing outcomes even within the fully uncertain Savagean framework. Furthermore, we show that relative utilitarian aggregation rules can be identified from the above class by imposing an axiom stronger than restricted certainty independence, and that the Rawlsian maximin version can be derived by considering strong preference for mixing instead. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.03232 |
| By: | Ryoga Doi (Graduate School of Economics, Keio University and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN) |
| Abstract: | We consider situations in which the final ranking of candidates is determined by rankings of multiple factors. For example, in Formula 1 racing, the annual ranking is determined by the results of many races. In sport climbing, the final ranking is determined by combining the results of two or three events. Dependent on rules that aggregate rankings across multiple factors, a candidate can improve the final position of a fellow candidate by holding back her performance without dropping the final position. We call the property of rules that prevent this kind of strategic manipulation assistance-proofness. We show that when there are four or more events, no scoring rule other than the null rule satisfies assistance-proofness. However, when there are two events, all dichotomous scoring rules satisfy assistance-proofness. For three events, we characterize a subclass of dichotomous scoring rules that satisfy assistanceproofness. |
| Keywords: | Assistance-proofness; Scoring rules; Voting; Strategic manipulation; Collusion |
| JEL: | D71 D72 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-12 |
| By: | Omar Besbes; Yash Kanoria; Akshit Kumar |
| Abstract: | Individuals often navigate several options with incomplete knowledge of their own preferences. Information provisioning tools such as public rankings and personalized recommendations have become central to helping individuals make choices, yet their value proposition under different marketplace environments remains unexplored. This paper studies a stylized model to explore the impact of these tools in two marketplace settings: uncapacitated supply, where items can be selected by any number of agents, and capacitated supply, where each item is constrained to be matched to a single agent. We model the agents utility as a weighted combination of a common term which depends only on the item, reflecting the item's population level quality, and an idiosyncratic term, which depends on the agent item pair capturing individual specific tastes. Public rankings reveal the common term, while personalized recommendations reveal both terms. In the supply unconstrained settings, both public rankings and personalized recommendations improve welfare, with their relative value determined by the degree of preference heterogeneity. Public rankings are effective when preferences are relatively homogeneous, while personalized recommendations become critical as heterogeneity increases. In contrast, in supply constrained settings, revealing just the common term, as done by public rankings, provides limited benefit since the total common value available is limited by capacity constraints, whereas personalized recommendations, by revealing both common and idiosyncratic terms, significantly enhance welfare by enabling agents to match with items they idiosyncratically value highly. These results illustrate the interplay between supply constraints and preference heterogeneity in determining the effectiveness of information provisioning tools, offering insights for their design and deployment in diverse settings. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.03369 |
| By: | Joshua S. Gans |
| Abstract: | This paper analyzes the design of tests to distinguish human from artificial intelligence through the lens of information design. We identify a fundamental asymmetry: while AI systems can strategically underperform to mimic human limitations, they cannot overperform beyond their capabilities. This leads to our main contribution—the concept of capability inversion domains, where AIs fail detection not through inferior performance, but by performing “suspiciously well” when they overestimate human capabilities. We show that if an AI significantly overestimates human ability in even one domain, it cannot reliably pass an optimally designed test. This insight reverses conventional intuition: effective tests should target not what humans do well, but the specific patterns of human imperfection that AIs systematically misunderstand. We identify structural sources of persistent misperception—including the difficulty of learning about failure from successful examples and fundamental differences in embodied experience—that make certain capability inversions exploitable for detection even as AI systems improve. |
| JEL: | C72 D82 D83 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33893 |
| By: | Ming Hu; Tongwen Wu |
| Abstract: | We study network revenue management problems motivated by applications such as railway ticket sales and hotel room bookings. Request types that require a resource for consecutive stays sequentially arrive with known arrival probabilities. We investigate two scenarios: the reject-or-accept scenario, where the request can be fulfilled by any available resource, and the choice-based scenario, which generalizes the former by incorporating customer preferences through basic attraction models. We develop constant-factor approximation algorithms: $1-1/e$ for the reject-or-accept scenario and $0.125$ for the choice-based scenario. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.00909 |
| By: | Hersch, Gil; Rowe, Thomas |
| Abstract: | Questions of fair allocation arise regularly throughout our lives, ranging from the trivial to the significant, for governments, private companies, associations, families, and friends. This article discusses the nature of allocative fairness, which is focused on the fair distribution of divisible and indivisible goods. The recent literature on allocative fairness takes John Broome's discussion of fairness as the proportional treatment of claims as its starting point. On this view, a claim is a reason why an individual ought to receive a good. This article discusses the nature of allocative fairness, claims, and goods. The most prominent allocative procedures in the literature are discussed, including equal allocation, equitable allocation, markets, lotteries, and queues. |
| Keywords: | queues; allocation; equality; equity; fairness; indivisible goods; lotteries; markets; procedural fairness |
| JEL: | J1 |
| Date: | 2025–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128181 |
| By: | Jeff Strnad |
| Abstract: | We develop and apply epistemic tests to various decentralized governance methods as well as to study the impact of participation. These tests probe the ability to reach a correct outcome when there is one. We find that partial abstention is a strong governance method from an epistemic standpoint compared to alternatives such as various forms of ``transfer delegation" in which voters explicitly transfer some or all of their voting rights to others. We make a stronger case for multi-step transfer delegation than is present in previous work but also demonstrate that transfer delegation has inherent epistemic weaknesses. We show that enhanced direct participation, voters exercising their own voting rights, can have a variety of epistemic impacts, some very negative. We identify governance conditions under which additional direct participation is guaranteed to do no epistemic harm and is likely to increase the probability of making correct decisions. In light of the epistemic challenges of voting-based decentralized governance, we consider the possible supplementary use of prediction markets, auctions, and AI agents to improve outcomes. All these results are significant because epistemic performance matters if entities such as DAOs (decentralized autonomous organizations) wish to compete with organizations that are more centralized. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.04136 |