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on Microeconomics |
| By: | Martimort, David; Simons (Semenov), Aggey |
| Abstract: | We study a repeated buyer-seller relationship with persistent adverse selection and one-sided enforcement, where a prepaid seller can breach by taking the money and running. The optimal stationary contract depends on enforcement strength and the discount factor. Three regimes arise. With a strong legal system, penalties deter breach and the optimal static contract can be repeated. With a weak system, the penalty caps transfers, forcing bunching among efficient (low-cost) types. With a very weak system, compliance relies on relational rents, causing large downward distortions. Strengthening public enforcement relaxes both incentive and enforcement constraints, reducing allocative inefficiency. |
| Keywords: | Adverse selection, Limited enforcement, Relational contracts, Contract breach |
| JEL: | D82 D86 K12 O17 |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131355 |
| By: | Dirk Bergemann; Tibor Heumann; Stephen Morris |
| 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 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.17267 |
| By: | Lefebvre, Perrin; Martimort, David |
| Abstract: | This paper develops a model of niche lobbying in which interest groups endogenously specialize in the acquisition of distinct types of policy-relevant information. Contrary to the view that niche strategies are chosen to soften competition and secure autonomy, we show that specialization arises as a self-enforcing equilibrium even though groups would prefer to compete over the same informational dimensions. The mechanism is demand-driven: when information acquisition is private and nonverifiable, the decision-maker’s inference from silence intensifies informational pressure on specialized groups, increasing the burden of information acquisition. We discuss the implications of these results for interest groups influence in climate and biodiversity policy. |
| Keywords: | Lobbying, Information Acquisition, Niche Expertise, Hard Information Communication, Specialization |
| JEL: | D72 D82 D83 |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131357 |
| By: | Jürgen Eichberger; Illia Pasichnichenko (University of Sussex) |
| Abstract: | Blackwell’s theorem relates the value of information to the “informativeness†of the information structure. His analysis applies to decision makers who are expected utility maximizers and know the information structure of the decision problem. When decision makers do not know the information structure precisely, the signal generating process and the posterior distributions are often only partially known. This paper studies preferences of decision makers with partial knowledge about signals and posterior probability distributions. The partial information approach allows us to relate the value of information to the decision maker’s attitude towards ambiguity. We introduce a new concept of informativeness based on the centroid and prove a theorem in the spirit of Blackwell. Furthermore, we characterize the value of information in terms of the preference relation over information structures. Depending on ambiguity attitude the value of information may be negative. |
| Keywords: | Value of information; Ambiguity; Informativeness; Belief functions; Information structure |
| JEL: | D81 D83 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:sus:susewp:0825 |
| 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 post-processing when objectives may shift; embed preferences when decision-stage frictions dominate. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.18732 |
| By: | Nicholas H. Kirk |
| Abstract: | We study dynamic games with hidden states and absorbing failure, where belief-driven actions can trigger irreversible collapse. In such environments, equilibria that sustain activity generically operate at the boundary of viability. We show that this geometry endogenously reverses the value of information: greater informational precision increases the probability of collapse on every finite horizon. We formalize this mechanism through a limit-viability criterion, and model opacity as a strategic choice of the information structure via Blackwell garbling. When failure is absorbing, survival values become locally concave in beliefs, implying that transparency destroys equilibrium viability while sufficient opacity restores it. In an extended game where agents choose the information structure ex ante, strictly positive opacity is necessary for equilibrium survival. The results identify irreversible failure--not coordination, misspecification, or ambiguity--as a primitive force generating an endogenous demand for opacity in dynamic games. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.12046 |
| By: | Guillouet, Louise; Martimort, David |
| Abstract: | This paper develops a model of niche lobbying in which interest groups endogenously specialize in the acquisition of distinct types of policy-relevant information. Contrary to the view that niche strategies are chosen to soften competition and secure autonomy, we show that specialization arises as a self-enforcing equilibrium even though groups would prefer to compete over the same informational dimensions. The mechanism is demand-driven: when information acquisition is private and nonverifiable, the decision-maker’s inference from silence intensifies informational pressure on specialized groups, increasing the burden of information acquisition. We discuss the implications of these results for interest groups influence in climate and biodiversity policy. |
| Keywords: | Lobbying, Information Acquisition, Niche Expertise, Hard Information Communication, Specialization |
| JEL: | D72 D82 D83 |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131356 |
| By: | Tan Gan; Yingkai Li |
| Abstract: | We study a screening problem in which an agent privately observes a set of feasible technologies and can strategically disclose only a subset to the principal. The principal then takes an action whose payoff consequences for both players are publicly known. Under the assumption that the possible technology sets are ordered by set inclusion, we show that the optimal mechanism promises the agent a utility that is weakly increasing as the reported set expands, and the choice of the principal maximizes her own utility subject to this promised utility constraint. Moreover, the optimal promised utility either coincides with the agent's utility under the complete information benchmark or remains locally constant, with the number of constant segments bounded by the number of downward-sloping segments of the complete information benchmark. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15580 |
| By: | Quitz\'e Valenzuela-Stookey |
| Abstract: | A principal must allocate a set of heterogeneous tasks (or objects) among multiple agents. The principal has preferences over the allocation. Each agent has preferences over which tasks they are assigned, which are their private information. The principal is constrained by the fact that each agent has the right to demand some status-quo task assignment. I characterize the conditions under which the principal can gain by delegating some control over the assignment to the agents. Within a large class of delegation mechanisms, I then characterize those that are obviously strategy-proof (OSP), and provide guidance for choosing among OSP mechanisms. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.20035 |
| By: | Zhuo Chen; Yun Liu |
| Abstract: | We study optimal dynamic persuasion in a bandit experimentation model where a principal, unlike in standard settings, has a single-peaked preference over the agent's stopping time. This non-monotonic preference arises because maximizing the agent's effort is not always in the principal's best interest, as it may lead to a dead end. The principal privately observes the agent's payoff upon success and uses the information as the instrument of incentives. We show that the optimal dynamic information policy involves at most two one-shot disclosures: an accelerator before the principal's optimal stopping time, persuading the agent to be optimistic, and a brake after the principal's optimal stopping time, persuading the agent to be pessimistic. A key insight of our analysis is that the optimal disclosure pattern -- whether gradual or one-shot -- depends on how the principal resolves a trade-off between the mean of stopping times and its riskiness. We identify the Arrow-Pratt coefficient of absolute risk aversion as a sufficient statistic for determining the optimal disclosure structure. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.13686 |
| By: | Zihao Li; Xuandong Chen |
| Abstract: | We study the design of optimal allocation mechanisms in an environment where agents and goods arrive stochastically. Agents have private types that determine the principal payoff. Either agents or goods can be held in a queue at a flow cost until allocation. The principal cannot use monetary transfers, but can verify agents types at a cost. We characterize the optimal mechanism at the steady state of the system. It is a dynamic threshold mechanism in which the principal sets type thresholds for agent admission and goods allocation. These thresholds depend on the current state of the mechanism. The model applies to public programs such as public housing and grant allocation, and to allocation problems within organizations such as capital budgeting. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.20728 |
| By: | Giovanni Valvassori Bolg\`e |
| Abstract: | In this paper, we characterize the extreme points of a class of multidimensional monotone functions. This result is then applied to large contests, where it provides a useful representation of optimal allocation rules under a broad class of distributional preferences of the contest designer. In contests with complete information, the representation significantly simplifies the characterization of the equilibria. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.19331 |
| By: | Yaonan Jin; Yingkai Li |
| Abstract: | We study revenue maximization when a seller offers $k$ identical units to ex ante heterogeneous, unit-demand buyers. While anonymous pricing can be $\Theta(\log k)$ worse than optimal in general multi-unit environments, we show that this pessimism disappears in large markets, where no single buyer accounts for a non-negligible share of optimal revenue. Under (quasi-)regularity, anonymous pricing achieves a $2+O(1/\sqrt{k})$ approximation to the optimal mechanism; the worst-case ratio is maximized at about $2.47$ when $k=1$ and converges to $2$ as $k$ grows. This indicates that the gains from third-degree price discrimination are mild in large markets. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.16488 |
| By: | Esmat Sangari; Rajni Kant Bansal |
| Abstract: | We study mixed bundling and competitive price-matching guarantees (PMGs) in a duopoly selling complementary products to heterogeneous customers. One retailer offers mixed bundling while the rival sells only a bundle. We characterize unique pure-strategy Nash equilibria across subgames and compare them to a no-bundling benchmark. Mixed bundling strictly dominates whenever an equilibrium exists. Conditional on bundling, PMG adoption trades off strategic demand capture against margin losses on loyal customers and varies systematically with relative demand responsiveness to prices and complementarities. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.15350 |
| By: | Masaki Miyashita |
| Abstract: | Building on the generalized hedonic-linear model of Pellegrino (2025), this paper studies optimal product differentiation when a representative consumer has preferences over product characteristics. Under multiproduct monopoly, the monopolist's choice of product characteristics is always aligned with the social planner's optimum, despite underproduction. By contrast, under oligopoly, multiple equilibria can arise that differ qualitatively in their patterns of characteristics design. We show that, while oligopoly equilibria exhibiting product differentiation yield higher welfare than those with product concentration, the degree of product differentiation under oligopoly remains below the socially optimal level. As a result, social welfare under oligopoly is typically lower than under monopoly, highlighting a key advantage of coordination in characteristics design. We extend the analysis to settings with overlapping ownership structures and show that common ownership can improve welfare by inducing firms to soften competition through increased product differentiation rather than output reduction. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.21573 |
| By: | Mark Whitmeyer |
| Abstract: | I study symmetric competitions in which each player chooses an arbitrary distribution over a one-dimensional performance index, subject to a convex cost. I establish existence of a symmetric equilibrium, document various properties it must possess, and provide a characterization via the first-order approach. Manifold applications--to R&D competition, oligopolistic competition with product design, and rank-order contests--follow. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.22112 |
| By: | Shipra Agrawal; Yiding Feng; Wei Tang |
| Abstract: | Quality information on online platforms is often conveyed through simple, percentile-based badges and tiers that remain stable across different market environments. Motivated by this empirical evidence, we study robust quality disclosure in a market where a platform commits to a public disclosure policy mapping the seller's product quality into a signal, and the seller subsequently sets a downstream monopoly price. Buyers have heterogeneous private types and valuations that are linear in quality. We evaluate a disclosure policy via a minimax competitive ratio: its worst-case revenue relative to the Bayesian-optimal disclosure-and-pricing benchmark, uniformly over all prior quality distributions, type distributions, and admissible valuations. Our main results provide a sharp theoretical justification for quantile-partition disclosure. For K-quantile partition policies, we fully characterize the robust optimum: the optimal worst-case ratio is pinned down by a one-dimensional fixed-point equation and the optimal thresholds follow a backward recursion. We also give an explicit formula for the robust ratio of any quantile partition as a simple "max-over-bins" expression, which explains why the robust-optimal partition allocates finer resolution to upper quantiles and yields tight guarantees such as 1 + 1/K for uniform percentile buckets. In contrast, we show a robustness limit for finite-signal monotone (quality-threshold) partitions, which cannot beat a factor-2 approximation. Technically, our analysis reduces the robust quality disclosure to a robust disclosure design program by establishing a tight functional characterization of all feasible indirect revenue functions. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.01066 |
| By: | Federico Echenique; Mat\'ias N\'u\~nez |
| Abstract: | We propose a solution and a mechanism for two-agent social choice problems with large (infinite) policy spaces. Our solution is an efficient compromise rule between the two agents, built on a common cardinalization of their preferences. Our mechanism, the multimatum, has the two players alternate in proposing sets of alternatives from which the other must choose. Our main result shows that the multimatum fully implements our compromise solution in subgame perfect Nash equilibrium. We demonstrate the power and versatility of this approach through applications to political economy, other-regarding preferences, and facility location. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.21275 |
| By: | Sander Onderstal (University of Amsterdam and Tinbergen Institute); Ruben van Oosten (University of Amsterdam) |
| Abstract: | We analyze vertical integration in auction markets using a symmetric independent private-values model where the auctioneer invests in the auctioned object's quality. We find that the auctioneer invests more after integration. The integrated bidder enjoys a bidding advantage over other bidders. The merging parties benefit from integration, while non-merging bidders are worse off. In a platform setting where the auctioneer is an intermediary and the bidders are sellers on her platform, vertical integration has ambiguous effects on consumer surplus and total welfare. Our results contribute to the ongoing policy debate about platforms self-preferencing, effective competition policy, and digital market regulation. |
| JEL: | D44 G34 |
| Date: | 2025–08–26 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250046 |
| By: | Alex Frankel; Navin Kartik |
| 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: $\beta/(\beta+\sigma)$, where $\beta$ is the benefit elasticity (reward to higher perception) and $\sigma$ 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 dissipates -- the same as in Tullock contests. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.14454 |
| By: | Kailin Chen |
| Abstract: | This note presents two results. First, it shows that under mild conditions, a decision problem is quasi-concave if the set of optimal actions is convex under every belief. Second, it shows that if a decision problem is quasi-concave, then it satisfies the local single crossing property after relabeling the states. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.12783 |
| By: | Jan Zápal; Clara Ponsatí |
| 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: | conclave, electable, Pope, repeated ballots, stable, supermajority |
| JEL: | D71 D72 Z12 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1553 |
| By: | Nabil I. Al-Najjar (Northwestern University); Harald Uhlig (University of Chicago - Department of Economics) |
| Abstract: | We propose rational disagreement as a formal framework for analyzing seemingly irrational behavior that can persist despite the wide availability of objective information in a steady-state. Agents are rational in that they correctly anticipate the distribution of aggregate outcomes, yet disagree about which specific individuals perform better than others. Notably, the subjective belief of any individual may be objectively correct. We illustrate the key concepts with a simple entry game. We show how unordered individual outcome distributions can be identified solely from aggregate statistics. We then characterize the resulting game, define its Nash equilibria, and develop a statistical test for the null hypothesis of agreement. Finally, we situate our framework within the broader literature on Bayesian games, behavioral biases, and the rational expectations hypothesis. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfi:wpaper:2026-15 |
| By: | Brian C. Albrecht; Mark Whitmeyer |
| Abstract: | How do cost shocks pass through to prices in markets with price dispersion? Pass-through analysis typically assumes a single equilibrium price, but empirical studies consistently document substantial price variation, even for homogeneous products. This paper develops a tractable framework that decomposes the pass-through problem into two distinct tiers. The first is a competition layer where consumers' \textit{consideration sets} determine equilibrium distributions of normalized margins. The second is a curvature layer where demand elasticity determines how these margins translate into prices and pass-through rates. The key theoretical innovation is showing that the strategic pricing game with arbitrary downward-sloping demand is order-isomorphic to a baseline unit-demand game once reformulated in terms of normalized effective margins. This decomposition yields closed-form pass-through formulas, robust bounds across demand specifications, and clear comparative statics linking market structure to incidence. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.17964 |