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on Economic Design |
| By: | Dworczak, Piotr; Smolin, Alex |
| Abstract: | An agent chooses an action using her private information combined with recommendations from an informed but potentially misaligned adviser. With a known alignment probability, the adviser reports his signal truthfully; with remaining probability, the adviser can send an arbitrary message. We characterize the decision rule that maximizes the agent’s worst-case expected payoff. Every optimal rule admits a trust region representation in belief space: advice is taken at face value when it induces a posterior within the trust region; otherwise, the agent acts as if the posterior were on the trust region’s boundary. We derive thresholds on the alignment probability above which the adviser’s presence strictly benefits the agent and fully characterize the solution in binary-state as well as binary-action environments. |
| Keywords: | information design; misalignment; human-AI interactions |
| JEL: | C72 D81 D83 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131429 |
| By: | Tomoya Kazumura; Debasis Mishra; Shigehiro Serizawa |
| Abstract: | We study a model of auction design where a seller is selling a set of objects to a set of agents who can be assigned no more than one object. Each agent’s preference over (object, payment) pair need not be quasilinear. If the domain contains all classical preferences, we show that there is a unique mechanism, the minimum Walrasian equilibrium price (MWEP) mechanism, which is strategy-proof, individually rational, and satisfies equal treatment of equals, no-wastage (every object is allocated to some agent), and no-subsidy (no agent is subsidized). This provides an equity-based characterization of the MEWP mechanism, and complements the efficiency-based characterization of the MWEP mechanism known in the literature. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1304 |
| By: | Christopher Stapenhurst (Brandenburg University of Technology); Andrew Clausen (School of Economics, University of Edinburgh) |
| Abstract: | Corruption requires a coalition to form and reach an agreement. Is there a cheap way to stop any agreement from being reached? We find an optimal mechanism that resembles Poker. The players’ hands are synthetic asymmetric information, and they create a lemons problem in the market for bribes. Our Poker mechanism is robust: it thwarts bribes regardless of the negotiation procedure, including alternating offers bargaining, Dutch auctions and arbitration. In compliance settings, there is a trade-off between rewarding the agent for honesty and punishing him for non-compliance. This trade-off is resolved by rigging the Poker hand distribution against the agent and in favour of the monitor. Finally, the cost of deterring bribes is inversely proportional to the number of monitors. |
| Keywords: | Corruption, adverse selection, screening, mechanism design, information design. |
| JEL: | D73 D82 D86 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:edn:esedps:326 |
| By: | Attar, Andrea; Bozzoli, Lorenzo; Strausz, Roland |
| Abstract: | We revisit the tension between the legal doctrine of renegotiation and economic efficiency. We introduce self-revealing mechanisms that combine bidirectional communication (the agent sends and receives information) with conditional disclosure (communication remains private during renegotiation but becomes verifiable at contract execution). In the canonical Fudenberg and Tirole (1990) framework, we design a self-revealing mechanism that fully mitigates the renegotiation threat by uniquely implementing the second-best allocation. Thus, the construction achieves the full-commitment outcome while satisfying renegotiation-proofness. Our optimal mechanism is structurally simple, and exploits signal disclosures to the agent to construct incentive-compatible off-path punishments, which she activates after observing a renegotiation offer. It verifies standard commitment assumptions by only conditioning decisions on public information, without requiring any third-party enforcement. In practical terms, it can be implemented with existing smart-contract techniques. Our results extend to general settings of renegotiation. |
| JEL: | D43 D82 D86 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131430 |
| By: | Zhiyuan Chen (David); Rui (David); Chen; Ming Hu; Yun Zhou |
| Abstract: | We study a dynamic matching problem on a two-sided platform with unbalanced patience, in which long-lived supply accumulates over time with a unit waiting cost per period, while short-lived demand departs if not matched promptly. High- or low-quality agents arrive sequentially with one supply agent and one demand agent arriving in each period, and matching payoffs are supermodular. In the centralized benchmark, the optimal policy follows a threshold-based rule that rations high-quality supply, preserving it for future high-quality demand. In the decentralized system, where self-interested agents decide whether to match under an exogenously specified payoff allocation proportion, we characterize a welfare-maximizing Markov perfect equilibrium. Unlike outcomes in the centralized benchmark or in full-backlog markets, the equilibrium exhibits distinct matching patterns in which low-type demand may match with high-type supply even when low-type supply is available. Unlike settings in which both sides have long-lived agents and perfect coordination is impossible, the decentralized system can always be perfectly aligned with the centralized optimum by appropriately adjusting the allocation of matching payoffs across agents on both sides. Finally, when the arrival probabilities for H- and L-type arrivals are identical on both sides, we compare social welfare across systems with different patience levels: full backlog on both sides, one-sided backlog, and no backlog. In the centralized setting, social welfare is weakly ordered across systems. However, in the decentralized setting, the social welfare ranking across the three systems depends on the matching payoff allocation rule and the unit waiting cost, and enabling patience can either increase or decrease social welfare. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.03995 |
| By: | Federico Fioravanti; Zoi Terzopoulou |
| Abstract: | This work contributes to a foundational question in economic theory: how do individual-level cognitive biases interact with collective choice mechanisms? We study a setting where voters hold intrinsic preference rankings over a set of alternatives but cast approval ballots to determine the collective outcome. The ballots are shaped by an anchoring bias: alternatives are presented sequentially by a social planner, and a voter approves an alternative if and only if it is acceptable and strictly preferred to all alternatives previously encountered. We first analyze which approval-based voting rules are anchor-proof, in the sense that they always select the same winner regardless of the presentation order. We show that this requirement is extremely demanding: only very restrictive rules satisfy it. We then turn to the potential influence of the social planner. On the upside, when the planner has no information about the voters' intrinsic preferences, she cannot manipulate the outcome. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.04494 |
| By: | Clara Ponsati; Jan Zapal |
| Abstract: | A finite group of voters must elect the pope from a finite set of candidates. They repeatedly cast ballots (possibly for ever) until one candidate attains at least Q votes. A candidate is electable—if enough voters prefer him to a continuous disagreement—as well as stable—if no other candidate is preferred to him by a sufficient number of voters. We provide a necessary and sufficient condition for the existence of a candidate that is both electable and stable. When there are three candidates and voters are willing to compromise somewhat, the condition requires choice by two-thirds supermajority, which coincides with the procedure that the Catholic Church has used to appoint the pope for almost a millennium. |
| Keywords: | repeated ballots, conclave, pope, electable, stable, supermajority |
| JEL: | D71 D72 Z12 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cer:papers:wp815 |
| By: | Lukyanov, Georgy; Safaryan, Samuel |
| Abstract: | We study public persuasion when a sender communicates with a large audience that can fact-check at heterogeneous costs. The sender commits to a public information policy before the state is realized, but any verifiable claim she makes after observing the state must be truthful (an ex-post implementability constraint). Receivers observe the public message and then decide whether to verify; this selective verification feeds back into the sender’s objective and turns the design problem into a constrained version of Bayesian persuasion. Our main result is a reverse comparative static: when factchecking becomes cheaper in the population, the sender optimally supplies a strictly less informative public signal. Intuitively, cheaper verification makes bold claims invite scrutiny, so the sender coarsens information to dampen the incentive to verify. We also endogenize two ex-post instruments—continuous falsification and fixed-cost repression—and characterize threshold substitutions from persuasion to manipulation and, ultimately, to repression as monitoring improves. The framework provides testable predictions for how transparency, manipulation, and repression co-move with changes in verification technology. |
| Keywords: | Bayesian persuasion; information design; verifiable evidence; costly verification;; public signals; Blackwell informativeness; falsification; repression |
| JEL: | D72 D82 D84 L14 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131438 |
| By: | Yifan Lin; Shenyu Qin; Kangning Wang; Lirong Xia |
| Abstract: | We study the committee selection problem in the canonical impartial culture model with a large number of voters and an even larger candidate set. Here, each voter independently reports a uniformly random preference order over the candidates. For a fixed committee size $k$, we ask when a committee can collectively beat every candidate outside the committee by a prescribed majority level $\alpha$. We focus on two natural notions of collective dominance, $\alpha$-winning and $\alpha$-dominating sets, and we identify sharp threshold phenomena for both of them using probabilistic methods, duality arguments, and rounding techniques. We first consider $\alpha$-winning sets. A set $S$ of $k$ candidates is $\alpha$-winning if, for every outside candidate $a \notin S$, at least an $\alpha$-fraction of voters rank some member of $S$ above $a$. We show a sharp threshold at \[ \alpha_{\mathrm{win}}^\star = 1 - \frac{1}{k}. \] Specifically, an $\alpha$-winning set of size $k$ exists with high probability when $\alpha \alpha_{\mathrm{win}}^\star$. We then study the stronger notion of $\alpha$-dominating sets. A set $S$ of $k$ candidates is $\alpha$-dominating if, for every outside candidate $a \notin S$, there exists a single committee member $b \in S$ such that at least an $\alpha$-fraction of voters prefer $b$ to $a$. Here we establish an analogous sharp threshold at \[ \alpha_{\mathrm{dom}}^\star = \frac{1}{2} - \frac{1}{2k}. \] As a corollary, our analysis yields an impossibility result for $\alpha$-dominating sets: for every $k$ and every $\alpha > \alpha_{\mathrm{dom}}^\star = 1 / 2 - 1 / (2k)$, there exist preference profiles that admit no $\alpha$-dominating set of size $k$. This corollary improves the best previously known bounds for all $k \geq 2$. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.04815 |
| By: | Jing Cai |
| Abstract: | We introduce experimental variation in the insurance contracts offered to rice farmers in China to study how contract design affects insurance takeup. We compare a single-contract offering with menus that include multiple contracts differing in premiums and payouts. Expanding the contract menu substantially increases take-up, primarily through higher adoption of the basic, lowest-cost contract. Additional experimental variation in relative prices and information provision shows that these effects are driven by context effects arising from relative price comparisons within the menu, rather than information inference. The findings highlight contract menu design as an effective supply-side tool for expanding insurance coverage. |
| JEL: | D1 D14 G22 M31 O16 Q12 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34797 |
| By: | Afonso Rodrigues |
| Abstract: | This paper develops a linear-demand framework to investigate endogenous product design. The key assumption is that the same product characteristics which drive goods utility also (at least partially) shape competitive interactions across products. I model this relationship allowing for differences in each characteristic's relevance to competition, their absolute intensity per good, and correlations to other characteristics. The framework is novel in its broad applicability to settings with any finite number of goods, firms, and attributes, allowing for both vertical and horizontal differentiation, all in an empirically testable model. Under Bertrand price competition I show that across different market structures, a pattern emerges: product differentiation along product attributes that firms control is primarily vertical, with horizontal differentiation only in latent attributes. Counter to standard intuition, simulations show that allowing for endogenous design can imply higher consumer surplus under monopoly than under competition, as monopoly's stronger incentives for attribute investment translate into higher effective quality. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.02833 |
| By: | Pietro Dall'Ara; Elia Sartori |
| Abstract: | A defining feature of digital goods is that replication and degradation are costless: once a high-quality good is produced, low-quality versions can be created and distributed at no additional cost. This paper studies quality-based screening in markets for digital goods, exploring how the insights of the canonical model of Mussa and Rosen (1978) change when production costs are nonseparable and, instead, depend only on the highest quality developed. The monopolist allocation exhibits two interdependent inefficiencies. First, a productive inefficiency arises: the monopolist underinvests in the highest quality relative to the efficiency benchmark. Second, due to a distributional inefficiency, certain buyers receive degraded versions of the produced good. Competition exacerbates productive inefficiency, but improves distributional efficiency relative to monopoly. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.13014 |
| By: | Ablyatifov, Emin; Lukyanov, Georgy |
| Abstract: | We study optimal taxation when the conversion of tax revenue into public goods is uncertain. In a static Ramsey framework with a representative household, a competitive firm, and two broad instruments (a labor-income tax and a commodity/output tax), a simple measure of trust— the perceived likelihood that revenue is actually delivered as public consumption—scales the marginal value of public funds. We show: (i) a trust threshold below which any distortionary taxation reduces welfare; (ii) above that threshold, policy uniquely pins down the scale of taxation but leaves a continuum of tax mixes (an equivalence frontier) that implement the same allocation and welfare; and (iii) tiny administrative or salience wedges select a unique instrument, typically favoring a broad base collected at source. We derive a trust-adjusted Ramsey rule in sufficient-statistics form, establish robustness to mild preference non-separabilities and concave public-good utility, and provide an isoelastic specialization with transparent comparative statics. |
| Keywords: | Optimal taxation; public goods; credibility; marginal value of public funds; tax; mix; administration. |
| JEL: | E61 H21 H30 C73 |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131432 |
| By: | Lukyanov, Georgy; Vlasova, Anna |
| Abstract: | We develop a tractable career–concerns model of expert recommendations with a continuous private signal. In equilibrium, advice obeys a cutoff rule: the expert recommends the risky option if and only if the signal exceeds a threshold. Under a mild relative–diagnosticity condition, the threshold is (weakly) increasing in reputation, yielding reputational conservatism. Signal informativeness and success priors lower the cutoff, while stronger career concerns raise it. A success–contingent bonus implements any target experimentation rate via a one–to–one mapping, providing an implementable design lever. |
| JEL: | D82 D83 C72 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131439 |
| By: | Weikl, Jan |
| Abstract: | Performance-contingent pay raises productivity, yet in the German Socio-Economic Panel (SOEP) only about 16% of workers report receiving performance pay, with the incidence being roughly seven percentage points higher among university graduates than among non-graduates. This coexistence of low aggregate take-up and a strong skill gradient is puzzling. This paper accounts for these twin facts with a principal-agent model in which the entire preference vector-risk aversion, probability weighting, time discounting, and effort cost-varies systematically with schooling. Endogenizing preferences yields two predictions: (i) optimal incentive slopes and induced effort increase with education-linked preferences; (ii) the productivity threshold for accepting performance pay falls with schooling, while heterogeneity in tastes keeps worker participation incomplete. A light calibration guided by documented schooling gradients reproduces modest overall incidence alongside a pronounced skill gradient. The key novelty is to treat the preference vector as an endogenous state variable that enters both sides of the principal-agent problem, shaping the optimisation problems of both the firm and the worker rather than being taken as a fixed primitive. |
| Abstract: | Leistungsabhängige Vergütung steigert die Produktivität. Im Sozio-Ökonomischen Panel (SOEP) berichten jedoch nur rund 16 % der Beschäftigten, leistungsbezogene Entlohnung zu erhalten. Zugleich liegt die Inzidenz unter Hochschulabsolventen um etwa sieben Prozentpunkte höher als unter Nicht-Absolventen. Dieses Nebeneinander aus geringer Gesamtverbreitung und ausgeprägtem Bildungsgradienten ist erklärungsbedürftig. Diese Arbeit erklärt beide Befunde in einem Prinzipal-Agenten-Modell, in dem der gesamte Präferenzvektor systematisch mit dem Bildungsniveau variiert. Die Endogenisierung von Präferenzen liefert zwei Implikationen: (i) optimale Anreizintensitäten und die induzierte Anstrengung steigen mit bildungsbezogenen Präferenzparametern; (ii) die Produktivitätsschwelle für die Akzeptanz leistungsabhängiger Vergütung sinkt mit dem Bildungsniveau, während Präferenzheterogenität die Teilnahme insgesamt unvollständig hält. Eine einfache Kalibrierung, welche sich an dokumentierten Bildungsgradienten orientiert, repliziert eine moderate Gesamtinzidenz bei gleichzeitig starkem Qualifikationsgradienten. Der Beitrag dieser Arbeit besteht darin, den Präferenzvektor als endogene Zustandsvariable zu modellieren, die die Optimierungsprobleme von Unternehmen und Beschäftigten gleichermaßen bestimmt, statt exogen vorgegeben zu sein. |
| Keywords: | performance pay, incentives, risk preferences, time discounting, contract theory |
| JEL: | D81 D82 D86 J24 J33 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:faulre:336772 |
| By: | Francisco, Kris A.; Basilio, Patricia Thea A. |
| Abstract: | Electricity subsidies serve diverse policy goals but pose significant fiscal, efficiency, and equity challenges. This paper focuses on the Philippines’ three major electricity subsidy mechanisms: the Universal Charge for Missionary Electrification (UCME), the Lifeline Rate, and the Senior Citizen Discount, situating their design and outcomes within a broader international evidence base. Recent empirical work from peer-reviewed journals and international organizations is synthesized to identify design features associated with improved efficiency and equity. The analysis emphasizes prevalent mechanisms such as increasing block tariffs, cross-subsidy mechanisms, time-variant pricing, and targeting approaches. A systematic review examines how these mechanisms perform across different contexts and assesses their transferability to the Philippine setting, considering the country’s institutional capacity, political economy constraints, and electricity market structure. Key findings highlight recurring design flaws, including pressures for fiscal sustainability, leakage and mis-targeting of benefits, and regressive distribution patterns, as well as effective practices such as targeted, transparent, and administratively feasible reforms that align subsidies with intended vulnerable groups. The paper concludes with implications for policy design, implementation, and future research directions, emphasizing the value of international lessons to inform fiscally sustainable and socially equitable electricity subsidies in the Philippines. Comments to this paper are welcome within 60 days from the date of posting. Email publications@pids.gov.ph. |
| Keywords: | Electricity Subsidies, Philippine Energy Market, Subsidy Reform |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:phd:dpaper:dp_2025-42 |
| By: | Tanguiane, Andranick S. |
| Abstract: | We describe Aristotle's mathematical model of weighted voting to explain and implement decision-making in democracies, oligarchies and the mixed states that combine elements of both systems. This model, originally presented in textual form, extends the known history of social choice theory back 450 years to the mid-4th century BC. The fact that the origins of the social choice theory go back to one of the most influential thinkers of all time enhances its scientific and historical significance. |
| Keywords: | Social choice, history, Aristotle, democracy, oligarchy, mixed state, weighted voting |
| JEL: | D71 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kitwps:336791 |
| By: | Jorge Ale-Chilet (UANDES - Universidad de los Andes [Santiago]); Cuicui Chen (SUNY - State University of New York); Jing Li (Tufts University [Medford]); Mathias Reynaert (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We study collusion among firms against imperfectly monitored environmental regulation. Firms increase variable profits by violating regulation and reduce expected noncompliance penalties by violating jointly. We consider a case of three German automakers colluding to reduce the effectiveness of emissions control technology. By estimating a structural model of the European automobile industry from 2007 to 2018, we find that collusion lowers expected noncompliance penalties substantially and increases buyer and producer surplus. Due to increased pollution, welfare decreases by €1.57–5.57 billion. We show how environmental policy design and antitrust play complementary roles in preventing noncompliance. |
| Keywords: | noncompliance, automobile market, pollution, regulation, collusion |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05492381 |
| By: | Armstrong, Christopher; Glaeser, Stephen; Park, Stella; Timmermans, Oscar |
| Abstract: | We study how the assignment of intellectual property rights between inventors and their employers affects innovation. Incomplete contracting theories predict that stronger employer property rights reduce the threat that employee inventors hold up their employers, thereby affecting inventor and invention outcomes. We test these predictions using a U.S. appellate court ruling that shifted the assignment of property rights from inventors to their employers. Within-employer-year analyses demonstrate that affected inventors are less likely to retain patent rights, assign patents to new employers, or leave their current employer, all consistent with reduced inventor ability to hold up their employers. Due to the reduced possibility of hold-up, affected inventors’ innovations are revealed more promptly when disclosed, draw from a broader set of prior patents, and spread more to subsequent patents. If affected inventors do leave their employer, they are more likely to relocate to unaffected states. Furthermore, employers affected by the ruling are more likely to locate their inventors in agglomeration economies and alter their innovation strategy by reallocating activity across states and expanding their innovation portfolios. Our collective evidence suggests that shifting intellectual property rights to employers affects inventor and invention outcomes by reducing the threat of employee hold-up from the employer's perspective. |
| Keywords: | corporate-innovation; disclosure; employee mobility; hold-up; incomplete contracts; employer-specific investment; corporate innovation |
| JEL: | J41 J61 O30 |
| Date: | 2026–01–08 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130648 |