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on Economic Design |
| By: | Ashwin Kambhampati |
| Abstract: | A central challenge in mechanism design is to identify mechanisms whose performance is robust under uncertainty about the environment. The maxmin optimality criterion is commonly used for this purpose, but it often yields a large and economically uninformative set of mechanisms. This paper proposes a lexicographic approach to refining the maxmin criterion and characterizes the efficiency of optimal mechanisms. In canonical screening and auction environments, the strongest refinement $\unicode{x2013}$ proper robustness $\unicode{x2013}$ selects ex post efficient mechanisms. By contrast, in a public good provision environment, it identifies the precise form of optimal inefficiencies, which become severe in large economies. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.06105 |
| By: | Rui Sun; Yi Zhang |
| Abstract: | A seller investigates a buyer before setting prices, balancing the cost of acquiring information against the gain from tailoring the contract to the buyer's private type. The optimal signal is coarse: no matter how rich the type space, the seller never needs more than three outcomes per buyer. The bound equals the number of independent post-signal decisions plus one, a quantity we call the effective policy dimension. Screening involves two decisions, whether to allocate and what to charge, giving the ternary bound. Limited liability is the source: without it, the price is pinned by the envelope, only the allocation decision remains, and signals are binary as in monitoring. The Myerson exclusion rule is an artifact of not investigating. With investigation, every marginal buyer trades with positive probability, governed by a universal function that connects information design to rational inattention. The bound holds for any strictly convex information cost. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.04405 |
| By: | Josu\'e Ortega; R. Pablo Arribillaga |
| Abstract: | Addressing the large inefficiencies generated by the Deferred Acceptance (DA) mechanism requires priority violations, but which ones are justifiable? The leading approach is to ask individuals if they consent to waive their priority ex-ante. We develop an alternative question-free solution, in which a priority violation is justifiable whenever the affected student either (i) directly benefits from the improvement, or (ii) is unimprovable under any assignment that Pareto-dominates DA. This endogenous justifiability criterion permits improvements unattainable by the leading consent-based mechanism under any consent structure. We provide a ``just below cutoffs'' mechanism that always finds a strongly justifiable matching whenever DA's outcome is inefficient, and build on it to construct a polynomial-time algorithm that expands justifiable improvements iteratively, converging to a DA improvement that cannot be Pareto-improved by any justifiable matching without strictly expanding the beneficiary set. Finally, we prove theoretically that both the ex-ante consent and the endogenous justifiability frameworks have important limitations in reaching Pareto-efficient outcomes, and use simulations to quantify how binding these constraints are in practice. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.06396 |
| By: | Negin Golrezaei; MohammadTaghi Hajiaghayi; Suho Shin |
| Abstract: | In the contest design problem, there are $n$ strategic contestants, each of whom decides an effort level. A contest designer with a fixed budget must then design a mechanism that allocates a prize $p_i$ to the $i$-th rank based on the outcome, to incentivize contestants to exert higher costly efforts and induce high-quality outcomes. In this paper, we significantly deepen our understanding of optimal mechanisms under general settings by considering nonconvex objectives in contestants' qualities. Notably, our results accommodate the following objectives: (i) any convex combination of user welfare (motivated by recommender systems) and the average quality of contestants, and (ii) arbitrary posynomials over quality, both of which may neither be convex nor concave. In particular, these subsume classic measures such as social welfare, order statistics, and (inverse) S-shaped functions, which have received little or no attention in the contest literature to the best of our knowledge. Surprisingly, across all these regimes, we show that the optimal mechanism is highly structured: it allocates potentially higher prize to the first-ranked contestant, zero to the last-ranked one, and equal prizes to the all intermediate contestants, i.e., $p_1 \ge p_2 = \ldots = p_{n-1} \ge p_n = 0$. Thanks to the structural characterization, we obtain a fully polynomial-time approximation scheme given a value oracle. Our technical results rely on Schur-convexity of Bernstein basis polynomial-weighted functions, total positivity and variation diminishing property. En route to our results, we obtain a surprising reduction from a structured high-dimensional nonconvex optimization to a single-dimensional optimization by connecting the shape of the gradient sequences of the objective function to the number of transition points in optimum, which might be of independent interest. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.04844 |
| By: | Ryoga Doi; Kensei Nakamura |
| Abstract: | This paper studies a dominance relation among scoring rules with respect to avoiding the selection of the Condorcet loser. In a voting model with three or more alternatives, we say that a scoring rule $f$ Condorcet-loser-dominates (CL-dominates) another scoring rule $g$ if the set of profiles where $f$ selects a Condorcet loser is a proper subset of the set where $g$ does. We show that the Borda rule not only CL-dominates all other scoring rules, but also is the only scoring rule that CL-dominates some scoring rule. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.05916 |
| 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. |
| JEL: | C7 D7 D82 K4 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35031 |
| By: | Koji Yokote |
| Abstract: | We establish a variant of Monge--Kantorovich duality for a constrained optimal transport problem with a continuum of agents, a finite set of alternatives, and general linear constraints. As an application, we revisit the large-market model of indivisible goods in Azevedo et al. (2013), identify a flaw in the original equilibrium-existence proof stemming from an incorrect compactness claim, and recover equilibrium existence via our duality approach. We also characterize equilibrium prices as minimizers of a potential function, which yields a method for computing equilibrium prices. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.02559 |
| By: | SHIMIZU, Chihiro |
| Abstract: | We develop a search-and-matching model of the housing market with a disclosure parameter θ governing price estimation precision, matching probability, and market participation. Transactions occur when the bid-ask gap falls within a fixed negotiation band; higher disclosure compresses the gap distribution. Model-implied welfare losses are decomposed into nine components. Disciplined by Japanese and UK institutional moments, total losses are 39.0% versus 8.4% of imputed rent. Reduced-form regressions using Japanese prefectural panel data are consistent with the model's two central predictions: higher disclosure coverage is associated with shorter time-on-market and lower price dispersion, with magnitudes close to the model-implied elasticities. Monte Carlo simulations indicate that welfare gains are positive in all simulated draws under the perturbation design. An online appendix develops a dynamic extension exploring broker exit, market collapse, and the akiya crisis. |
| Keywords: | Information disclosure, search and matching, housing mismatch, market participation, broker viability |
| JEL: | D83 R21 R31 D91 G51 R23 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:hit:rcesrs:dp26-4 |
| By: | Mathieu Martin; Linus Thierry Nana Noumi; Zéphirin Nganmeni; Ashley Piggins (CY Cergy Paris Université, THEMA) |
| Abstract: | A long-standing foundational problem in the spatial theory of politics is the generic emptiness of the majority core when there is more than one dimension in the policy space. This implies that, in general, we cannot predict where win-motivated candidates will locate in an electoral contest decided by majority rule. We assume that the candidates face some uncertainty: they observe each voter’s ideal point in the policy space but not their indifference surfaces. Given any proper spatial voting game, we first identify the set of imprudent positions in the space. If a candidate adopts an imprudent position, then there exists a position for their opponent that will defeat them for certain. We introduce a new concept, the prudent core, as the set of positionsthat are not imprudent in this sense. We show that the prudent core is always non-empty. With majority voting and an odd number of voters, the prudent core equals the dimension-by-dimension median. The prudent core equals the majority core whenever the latter is nonempty. |
| Keywords: | Spatial theory of politics, median voter theorem, prudent core, prudence |
| JEL: | D71 D72 D81 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ema:worpap:2026-04 |
| By: | Yu-Chin Hsu; Tong Li; Chu-An Liu; Hidenori Takahashi |
| Abstract: | This paper develops a unified framework for testing monotonicity of Bayesian Nash equilibrium strategies in unobserved types in games of incomplete information. We show that, under symmetric independent private types, monotonicity of differentiable equilibrium strategies is equivalent to monotonicity of a quasi-inverse strategy identified from observed actions. This allows the problem to be reformulated as testing a countable set of moment inequalities involving unconditional expectations. We propose a Cramer-von Mises-type statistic with bootstrap critical values. The method accommodates covariates and game heterogeneity. Monte Carlo simulations demonstrate finite-sample performance, and an application to procurement auctions illustrates cartel detection. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.06643 |
| By: | Keita Sunada; Kohei Izumi |
| Abstract: | We study treatment assignment when treatments are limited in supply, where a planner aims to maximize social welfare by assigning treatments based on observable covariates. Such constraints are common when treatments are scarce and costly, but they complicate the analysis of optimal assignment rules because assignment probabilities must be coordinated across the entire covariate distribution. We develop a new approach that reformulates the planner’s problem as an optimal transport problem, which makes the constraints analytically tractable. Using a limits of experiments framework, we establish local asymptotic optimality results for two canonical decision rules—the plug-in rule and the Bayesian rule. We show that the former rule can dominate the latter rule, with simulations demonstrating sizable risk reductions. An empirical illustration using school voucher program data from Angrist et al. (2006) demonstrates how the two rules differ in practice. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1308 |
| By: | Shobhit Singhal; Lesia Mitridati; Licio Romao |
| Abstract: | Renewable power sources have low marginal pro-duction costs, but may result in high balancing costs due to the inherent production uncertainty. Current day-ahead markets elicit only point production profiles and neglect the degree of uncertainty associated with each generating asset, preventing the market operator from accounting for balancing costs in day-ahead dispatch and ancillary service procurement. This increases total system costs and undermines market efficiency, especially in renewable-heavy power systems. To address this, we propose a new market clearing paradigm based on a two-stage mechanism, where producers report their production forecast distribution in the day-ahead stage, followed by the realized production in the real-time stage. By extending the Vickery-Clarke-Groves (VCG) payments to the two-stage setting, we show appealing properties in terms of incentive compatibility and individual rationality. An electricity market case study validates the theoretical claims, and illustrates the effectiveness of the proposed mechanism to reduce system costs. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.02455 |
| By: | Manuel Mueller-Frank; Minghao Pan; Omer Tamuz |
| Abstract: | The value of proof-of-work cryptocurrencies critically depends on miners having incentives to follow the protocol. However, the Bitcoin mining protocol proposed by Nakamoto (2008) and implemented in practice is well known not to constitute an equilibrium: Eyal and Sirer (2018) construct a profitable deviation called ``selfish mining'' which relies on strategically delaying disclosure of newly mined blocks rather than publishing them immediately. We propose inertial mining, a novel mining protocol. When miners follow inertial mining, they produce the outcome intended by Nakamoto, i.e., a single longest chain. But unlike the Bitcoin mining protocol, inertial mining constitutes an equilibrium (assuming no miner controls more than half of the mining power). Indeed, neither selfish mining nor any other deviation is profitable. Furthermore, inertial mining only changes miners' behavior in the event of off-path forks, and can be implemented in Bitcoin without any changes to its consensus mechanism or blockchain architecture. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.06092 |