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on Microeconomics |
| By: | Dirk Bergemann (Yale University); Tibor Heumann (Instituto de Econom’a, Pontificia Universidad Cat—lica de Chile); Stephen Morris (Massachusetts Institute of Technology) |
| Abstract: | We develop an integrated framework for information design and mechanism design in screening environments with quasilinear utility. Using the tools of majorization theory and quantile functions, we show that both information design and mechanism design problems reduce to maximizing linear functionals subject to majorization constraints. For mechanism design, the designer chooses allocations weakly majorized by the exogenous inventory. For information design, the designer chooses information structures that are majorized by the prior distribution. When the designer can choose both the mechanism and the information structure simultaneously, then the joint optimization problem becomes bilinear with two majorization constraints. We show that pooling of values and associated allocations is always optimal in this case. Our approach unifies classic results in auction theory and screening, extends them to information design settings, and provides new insights into the welfare effects of jointly optimizing allocation and information. |
| Date: | 2026–01–23 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2494 |
| By: | Navin Kartik (Yale University, Department of Economics); Francesco Squintani (University of Warwick, Department of Economics); Katrin Tinn (McGill University, Desautels Faculty of Management) |
| Abstract: | We study two-player constant-sum Bayesian games with type-independent payoffs. Under a "completeness" statistical condition, any "identifiable" equilibrium is an ex-post equilibrium. We apply this result to a Downsian election in which office-motivated candidates possess private information about policy consequences. The ex-post property implies a sharp bound on information aggregation: equilibrium voter welfare is at best equal to the efficient use of a single candidate's information. In canonical specifications, politicians may "anti-pander" (overreact to their information), whereas some degree of pandering would be socially beneficial. We discuss other applications of the ex-post result. |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2484 |
| By: | Joshua S. Gans |
| Abstract: | Machine learning systems embed preferences either in training losses or through post-processing of calibrated predictions. Applying information design methods from Strack and Yang (2024), this paper provides decision-problem-agnostic conditions under which separation—training preference-free and applying preferences ex post is optimal. Unlike prior work that requires specifying downstream objectives, the welfare results here apply uniformly across decision problems. The key primitive is a diminishing-value-of-information condition: relative to a fixed (normalised) preference-free loss, preference embedding makes informativeness less valuable at the margin, inducing a mean-preserving contraction of learned posteriors. Because the value of information is convex in beliefs, preference-free training weakly dominates for any expected-utility decision problem. This provides theoretical foundations for modular AI pipelines that learn calibrated probabilities and implement asymmetric costs through downstream decision rules. However, separation requires users to implement optimal decision rules. When cognitive constraints bind—as documented in human-AI decision-making—preference embedding can dominate by automating threshold computation. These results provide design guidance: preserve optionality through postprocessing when objectives may shift; embed preferences when decision-stage frictions dominate. |
| JEL: | C45 C53 D81 D82 D83 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34780 |
| By: | Navin Kartik (Department of Economics, Yale University); Elliot Lipnowski (Department of Economics, Yale University); Harry Pei (Department of Economics, Northwestern University) |
| Abstract: | Does electoral replacement ensure that officeholders eventually act in voters' interests? We study a reputational model of accountability. Voters observe incumbents' performance and decide whether to replace them. Politicians may be "good" types who always exert effort or opportunists who may shirk. We find that good long-run outcomes are always attainable, though the mechanism and its robustness depend on economic conditions. In environments conducive to incentive provision, some equilibria feature sustained effort, yet others exhibit some long-run shirking. In the complementary case, opportunists are never fully disciplined, but selection dominates: every equilibrium eventually settles on a good politician, yielding permanent effort. |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2483 |
| By: | Kemal Ozbek |
| Abstract: | A principal delegates choice to an agent whose decision depends on both beliefs and tastes. The principal can steer the delegated decision using two costly instruments: (i) an information policy that determines a Bayes--plausible distribution of posteriors, and (ii) a bias-management policy that shifts the agent's effective taste. We study a binary-state, two-action, convex hull of two benchmark tastes specialization with posterior-separable information costs. The analysis admits an inner--outer decomposition: optimal bias management is bang--bang (either no intervention or the minimal intervention needed to flip the agent's action), while the optimal information policy is characterized by concavification of an endogenous posterior value function that already incorporates optimal management and information costs. This structure clarifies how information acquisition and bias management interact; they can be complements, substitutes, or both depending on the primitives of the model. Information changes which posteriors are realized and hence where management is used; management reshapes the curvature and kinks of the posterior value function and hence the marginal value of information. The model delivers regime classifications for pooling vs. informativeness and for management at different posteriors within informative signals, and highlights how comparative statics can be monotone or non-monotone depending on how concavification contact points move with costs. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.10821 |
| By: | Filip Tokarski |
| Abstract: | I study the welfare-maximizing allocation of heterogeneous goods when monetary transfers are prohibited. Agents have private cardinal values, and the designer chooses a non-monetary mechanism subject to incentive compatibility and aggregate supply constraints. I characterize implementable allocations and give sufficient conditions under which the optimum coincides with a competitive equilibrium with equal incomes (CEEI). When these conditions fail, I characterize the optimum for two symmetric goods. I show that when narrow preference margins between goods predict greater need, the designer can sometimes benefit from distorting CEEI by offering a menu containing pure options and bundles. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.00487 |
| By: | Alex Frankel (University of Chicago, Booth School of Business); Navin Kartik (Yale University, Department of Economics) |
| Abstract: | Signaling is wasteful. But how wasteful? We study the fraction of surplus dissipated in a separating equilibrium. For isoelastic environments, this waste ratio has a simple formula: B/(B+S)$ where B is the benefit elasticity (reward to higher perception) and S is the elasticity of higher types' relative cost advantage. The ratio is constant across types and independent of other parameters, including convexity of cost in the signal. A constant waste ratio characterizes the isoelastic class. In winner-take-all signaling tournaments with N candidates, exactly $(N-1)/N of the surplus dissipatesÑthe same as in Tullock contests. |
| Date: | 2026–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2495 |
| By: | Aviad Heifetz (Open University of Israel); Enrico Minelli (University of Brescia); Herakles Polemarchakis (University of Warwick) |
| Abstract: | Purely affective interaction allows the welfare of an individual to depend on her own actions and on the profile of welfare levels of others. Under an assumption on the structure of mutual affection that we interpret as "non-explosive mutual affection, " we show that equilibria of simultaneous-move affective interaction are Pareto optimal independently of whether or not an induced standard game exists. Moreover, if purely affective interaction induces a standard game, then an equilibrium profile of actions is a Nash equilibrium of the game, and this Nash equilibrium and Pareto optimal profile of strategies is locally dominant. |
| Date: | 2026–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2360r1 |
| By: | Emilio Calvano; Clemens Possnig; Juha Tolvanen |
| Abstract: | We analyze strategic communication when advice is generated by a reinforcement-learning algorithm rather than by a fully rational sender. Building on the cheap-talk framework of Crawford and Sobel (1982), an advisor adapts its messages based on payoff feedback, while a decision maker best-responds. We provide a theoretical analysis of the long-run communication outcomes induced by such reward-driven adaptation. With aligned preferences, we establish that learning robustly leads to informative communication even from uninformative initial policies. With misaligned preferences, no stable outcome exists; instead, learning generates cycles that sustain highly informative communication and payoffs exceeding those of any static equilibrium. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.12035 |
| By: | Yunus C. Aybas; Matthew O. Jackson |
| Abstract: | People learn about opportunities and actions by observing the experiences of their friends. We model how homophily -- the tendency to associate with similar others -- affects both the endogenous quality and diversity of the information accessible to decision makers. Homophily provides higher-quality information, since observing the payoffs of another person is more informative the more similar that person is to the decision maker. However, homophily can lead people to take actions that generate less information. We show how network connectivity influences the tradeoff between the endogenous quantity and quality of information. Although homophily hampers learning in sparse networks, it enhances learning in sufficiently dense networks. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.00934 |
| By: | Kolagani Paramahamsa |
| Abstract: | We investigate a seller's revenue-maximizing mechanism in a setting where a desirable good is sold together with an undesirable bad (e.g., advertisements) that generates third-party revenue. The buyer's private information is two-dimensional: valuation for the good and willingness to pay to avoid the bad. Following the duality framework of Daskalakis, Deckelbaum, and Tzamos (2017), whose results extend to our setting, we formulate the seller's problem using a transformed measure $\mu$ that depends on the third-party payment $k$. We provide a near-characterization for optimality of three pricing mechanisms commonly used in practice -- the Good-Only, Ad-Tiered, and Single-Bundle Posted Price -- and introduce a new class of tractable, interpretable two-dimensional orthant conditions on $\mu$ for sufficiency. Economically, $k$ yields a clean comparative static: low $k$ excludes the bad, intermediate $k$ separates ad-tolerant and ad-averse buyers, and high $k$ bundles ads for all types. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.22404 |
| By: | Manuel Eberl; Patrick Lederer |
| Abstract: | In rank aggregation, the goal is to combine multiple input rankings into a single output ranking. In this paper, we analyze rank aggregation methods, so-called social welfare functions (SWFs), with respect to strategyproofness, which requires that no agent can misreport his ranking to obtain an output ranking that is closer to his true ranking in terms of the Kemeny distance. As our main result, we show that no anonymous SWF satisfies unanimity and strategyproofness when there are at least four alternatives. This result is proven by SAT solving, a computer-aided theorem proving technique, and verified by Isabelle, a highly trustworthy interactive proof assistant. Further, we prove by hand that strategyproofness is incompatible with majority consistency, a variant of Condorcet-consistency for SWFs. Lastly, we show that all SWFs in two natural classes have a large incentive ratio and are thus highly manipulable. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.06582 |
| By: | Stéphane Gonzalez (Université Jean Monnet Saint-Etienne, CNRS, Université Lumière Lyon 2, emlyon business school, GATE, 42023 Lyon, France); Le-Nhat-Linh Huynh (Université Jean Monnet Saint-Etienne, CNRS, Université Lumière Lyon 2, emlyon business school, GATE, 42023 Lyon, France) |
| Abstract: | We study collective decision-making when individual preferences depend on the state of the world. The paper introduces an axiom, Aggregation Consistency, linking the way society aggregates utilities across individuals with the way each individual aggregates outcomes across states. The axiom requires that any alternative preferred in every realized state remains preferred before uncertainty is resolved. Combined with standard social choice and aggregation principles, it implies that the same functional form must govern both interpersonal and intrapersonal aggregation. Under familiar conditions, this yields two canonical families of solutions: generalized utilitarian rules based on quasi-arithmetic means, and Rawlsian rules based on minimum or maximum operators. The analysis unifies utilitarian and egalitarian criteria within a single axiomatic framework for collective choice under uncertainty. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2604 |
| By: | Andreas Kleiner; Benny Moldovanu; Philipp Strack |
| Abstract: | A key insight is that many, seemingly different, economic problems share a common mathematical structure: they all involve the maximization of a functional over sets of monotonic functions that are either majorized by, or majorize, a given function. We first present new, simpler proofs for the main characterization results of the extreme points of sets defined by monotonicity and majorization constraints obtained by Kleiner, Moldovanu, and Strack (2021). We then demonstrate how the characterization results can be fruitfully applied to a broad range of economic applications, from auction and information design to decision problems under risk such as optimal stopping. Finally, we conclude with an overview of recent, related work that extends these characterizations to settings with additional constraints, multidimensional state spaces, and alternative stochastic orders. |
| Date: | 2026–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2492 |
| By: | Dolgopolov, Artur (Center for Mathematical Economics, Bielefeld University); Karos, Dominik (Center for Mathematical Economics, Bielefeld University); Lehrer, Ehud (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | This paper develops an axiomatic framework for decision making when preferences depend not only on the current alternative but also on the past frequency with which alternatives have been chosen. We identify key independence axioms that characterize frequency-dependent preferences. In addition, we derive representation results for preference structures that separate the intrinsic utility of an alternative from the effect associated with its consumption frequency. The framework provides a foundation for modeling variety-seeking behavior, while remaining closely connected to classical utility theory and extending it to encompass history-sensitive preferences. |
| Keywords: | History-dependent Preferences, Repeated decision problem, time-inconsistent preferences, habit formation |
| Date: | 2026–01–28 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:762 |
| By: | Oechssler, Jörg |
| Abstract: | I study a formal mechanism that can sustain Pareto optimality in a new and very broad class of dilemma games. In the absence of a central authority that could enforce multilateral agreements, the mechanism is based on binding unilateral commitments, which condition a player's (possibly multidimensional) contribution on other players' contributions. I show that unexploitable better response dynamics converge to Pareto optimal contributions when the game is played recurrently. |
| Keywords: | public goods; climate treaties; conditional contributions |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:awi:wpaper:0770 |
| By: | Martin Beraja; Francisco J. Buera |
| Abstract: | Are competition policies designed for static industries suitable for innovative industries where dynamic competition for the market is key? If not, how should policies differ? We develop a model of the life-cycle of an oligopolistic industry: a version of Jovanovic and MacDonald (1994) with a finite number of firms. The equilibrium features a period of intense entry, followed by a shakeout and eventual industry concentration as some firms scale through innovation while most exit. We analyze the second-best problem of a government subsidizing small firms to promote competition. Innovation and dynamic competition do not necessarily justify intervention, as the equilibrium can still be second best. In general, the optimal policy depends on the nature of competition. Firms primarily compete for the market when innovation leads to large differences in scale. The government can wait to intervene in this case; committing to do whatever it takes to promote competition if and when the industry concentrates excessively. Subsidies early in the life-cycle are unnecessary. These results contrast with calls for aggressive ex-ante regulation in highly innovative industries, suggesting a wait-and-see approach may be preferable. We apply these insights to digital and AI industries in the U.S. using data on venture-backed firms. |
| JEL: | E0 L0 O3 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34770 |
| By: | Bernard Cornet (Department of Economics, University of Kansas, Lawrence, KS 66045, USA) |
| Abstract: | Non-tatonnement processes and planning procedures have been defined in different economic contexts, as dynamic processes to reach efficient allocations, with or without price adjustment, satisfying the property that, along the process, the utility of every agent is non-decreasing and transactions can occur, thus making a clear distinction with the study of tatonnement processes whose goal is to reach competitive equilibria with transactions occurring only at equilibrium. In this paper, we provide sufficient conditions guaranteeing that every Pareto optimum which is preferred or indifferent to some given initial situation by every agent is accessible by a monotone efficient dynamic process. The framework considered is general enough to encompass the accessibility of Pareto optima by a non-tatonnement barter process in an exchange economy, the neutrality of the MDP procedure in an economy with public goods, and other types of planning procedures. |
| Keywords: | Non-tatonnement process, Barter and exchange process, Planning procedure, Pareto optima. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:kan:wpaper:202605 |
| By: | David Lancashire |
| Abstract: | Achieving incentive compatibility under informational decentralization is impossible within the class of direct and revelation-equivalent mechanisms typically studied in economics and computer science. We show that these impossibility results are conditional by identifying a narrow class of non-revelation-equivalent mechanisms that sustain enforcement by inferring preferences indirectly through parallel, uncorrelatable games. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.01790 |
| By: | Bernard Cornet (Department of Economics, University of Kansas, Lawrence, KS 66045, USA) |
| Abstract: | This paper investigates several existence theorems that are central to mathematical economics and game theory, with a special emphasis on infinite-dimensional settings. By synthesizing different related formulations, including the existence of equilibria, fixed-point/coincidence theorems, surjectivity theorems, variational inequalities and Gale-Nikaido-Debreu generalizations, we aim to provide a unifying perspective across varied mathematical landscapes. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:kan:wpaper:202607 |