{"title":"Incentivizing Agents through Ratings","authors":"Peiran Xiao","doi":"arxiv-2407.10525","DOIUrl":"https://doi.org/arxiv-2407.10525","url":null,"abstract":"I study the optimal design of performance or product ratings to motivate\u0000agents' performance or investment in product quality. The principal designs a\u0000rating that maps their quality (performance) to possibly stochastic scores.\u0000Agents have private information about their abilities (cost of effort/quality)\u0000and choose their quality. The market observes the scores and offers a wage\u0000equal to the agent's expected quality [resp. ability]. I first show that an incentive-compatible interim wage function can be\u0000induced by a rating (i.e., feasible) if and only if it is a mean-preserving\u0000spread of quality [resp. ability]. Thus, I reduce the principal's rating design\u0000problem to the design of a feasible interim wage. When restricted to\u0000deterministic ratings, the optimal rating design is equivalent to the optimal\u0000delegation with participation constraints (Amador and Bagwell, 2022). Using\u0000optimal control theory, I provide necessary and sufficient conditions under\u0000which lower censorship, and particularly a simple pass/fail test, are optimal\u0000within deterministic ratings. In particular, when the principal elicits maximal\u0000effort (quality), lower censorship [resp. pass/fail] is optimal if the density\u0000is unimodal [resp. increasing]. I also solve for the optimal deterministic\u0000ratings beyond lower censorship for general distributions and preferences. For\u0000general ratings, I provide sufficient conditions under which lower censorship\u0000remains optimal. In the effort-maximizing case, a pass/fail test remains\u0000optimal if the density is increasing.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"84 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141718027","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Carbon Pricing and Resale in Emission Trading Systems","authors":"Peyman Khezr","doi":"arxiv-2407.07386","DOIUrl":"https://doi.org/arxiv-2407.07386","url":null,"abstract":"Secondary markets and resale are integral components of all emission trading\u0000systems. Despite the justification for these secondary trades, such as\u0000unpredictable demand, they may encourage speculation and result in the\u0000misallocation of permits. In this paper, our aim is to underscore the\u0000importance of efficiency in the initial allocation mechanism and to explore how\u0000concerns leading to the establishment of secondary markets, such as uncertain\u0000demand, can be addressed through alternative means, such as frequent auctions.\u0000We demonstrate that the existence of a secondary market could lead to higher\u0000untruthful bids in the auction, further encouraging speculation and the\u0000accumulation of rent. Our results suggest that an inefficient initial\u0000allocation could enable speculators with no use value for the permits to bid in\u0000the auction and subsequently earn rents in secondary markets by trading these\u0000permits. Even if the secondary market operates efficiently, the resulting rent,\u0000which represents a potential loss of auction revenue, cannot be overlooked.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"25 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141587595","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Optimal Decision Mechanisms for Committees: Acquitting the Guilty","authors":"Deniz Kattwinkel, Alexander Winter","doi":"arxiv-2407.07293","DOIUrl":"https://doi.org/arxiv-2407.07293","url":null,"abstract":"A group of privately informed agents chooses between two alternatives. How\u0000should the decision rule be designed if agents are known to be biased in favor\u0000of one of the options? We address this question by considering the Condorcet\u0000Jury Setting as a mechanism design problem. Applications include the optimal\u0000decision mechanisms for boards of directors, political committees, and trial\u0000juries. While we allow for any kind of mechanism, the optimal mechanism is a voting\u0000mechanism. In the terminology of the trial jury example: When jurors (agents)\u0000are more eager to convict than the lawmaker (principal), then the defendant\u0000should be convicted if and only if neither too many nor too few jurors vote to\u0000convict. This kind of mechanism accords with a judicial procedure from ancient Jewish\u0000law.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"36 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141587596","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Pattern formation by advection-diffusion in new economic geography","authors":"Kensuke Ohtake","doi":"arxiv-2407.05804","DOIUrl":"https://doi.org/arxiv-2407.05804","url":null,"abstract":"A new economic geography model is proposed in which the migration of mobile\u0000workers is proximate and perturbed by non-economic factors. The model consists\u0000of a tractable core-periphery model assuming a quasi-linear log utility\u0000function of consumers and an advection-diffusion equation governing the time\u0000evolution of a population distribution. The stability of a spatially\u0000homogeneous stationary solution and the large time behavior of solutions to the\u0000model on a one-dimensional periodic space are investigated. When the spatially\u0000homogeneous stationary solution is unstable, solutions starting around it are\u0000found to eventually form spatial patterns with several urban areas in which\u0000mobile workers agglomerate.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"18 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141577894","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Andrea Collevecchio, Hlafo Alfie Mimun, Matteo Quattropani, Marco Scarsini
{"title":"Basins of Attraction in Two-Player Random Ordinal Potential Games","authors":"Andrea Collevecchio, Hlafo Alfie Mimun, Matteo Quattropani, Marco Scarsini","doi":"arxiv-2407.05460","DOIUrl":"https://doi.org/arxiv-2407.05460","url":null,"abstract":"We consider the class of two-person ordinal potential games where each player\u0000has the same number of actions $K$. Each game in this class admits at least one\u0000pure Nash equilibrium and the best-response dynamics converges to one of these\u0000pure Nash equilibria; which one depends on the starting point. So, each pure\u0000Nash equilibrium has a basin of attraction. We pick uniformly at random one game from this class and we study the joint\u0000distribution of the sizes of the basins of attraction. We provide an asymptotic\u0000exact value for the expected basin of attraction of each pure Nash equilibrium,\u0000when the number of actions $K$ goes to infinity.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"55 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141573724","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Collective Upkeep","authors":"Erik Madsen, Eran Shmaya","doi":"arxiv-2407.05196","DOIUrl":"https://doi.org/arxiv-2407.05196","url":null,"abstract":"We design mechanisms for maintaining public goods which require periodic\u0000non-monetary contributions. Utilitarian welfare is maximized by concentrating\u0000contributions among low-cost group members, but such policies generally induce\u0000some members to leave the group or misreport their preferences. To forestall\u0000exit, contributions must be shifted from members with intermediate costs to\u0000some high-cost members. To deter misreporting, members must be screened using\u0000up to two membership tiers, which reward larger contributions with increased\u0000access to the good. We apply our results to the design of platforms such as\u0000Netflix and TikTok hosting crowd-sourced recommendation engines, which function\u0000as public goods supported by user feedback about new content.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141573727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kevin Riehl, Anastasios Kouvelas, Michail Makridis
{"title":"Fair Money -- Public Good Value Pricing With Karma Economies","authors":"Kevin Riehl, Anastasios Kouvelas, Michail Makridis","doi":"arxiv-2407.05132","DOIUrl":"https://doi.org/arxiv-2407.05132","url":null,"abstract":"City road infrastructure is a public good, and over-consumption by\u0000self-interested, rational individuals leads to traffic jams. Congestion pricing\u0000is effective in reducing demand to sustainable levels, but also controversial,\u0000as it introduces equity issues and systematically discriminates lower-income\u0000groups. Karma is a non-monetary, fair, and efficient resource allocation\u0000mechanism, that employs an artificial currency different from money, that\u0000incentivizes cooperation amongst selfish individuals, and achieves a balance\u0000between giving and taking. Where money does not do its job, Karma achieves\u0000socially more desirable resource allocations by being aligned with consumers'\u0000needs rather than their financial power. This work highlights the value\u0000proposition of Karma, gives guidance on important Karma mechanism design\u0000elements, and equips the reader with a useful software framework to model Karma\u0000economies and predict consumers' behaviour. A case study demonstrates the\u0000potential of this feasible alternative to money, without the burden of\u0000additional fees.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"175 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141573725","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Simon K. Schnyder, John J. Molina, Ryoichi Yamamoto, Matthew S. Turner
{"title":"Nash epidemics","authors":"Simon K. Schnyder, John J. Molina, Ryoichi Yamamoto, Matthew S. Turner","doi":"arxiv-2407.04366","DOIUrl":"https://doi.org/arxiv-2407.04366","url":null,"abstract":"Faced with a dangerous epidemic humans will spontaneously social distance to\u0000reduce their risk of infection at a socio-economic cost. Compartmentalised\u0000epidemic models have been extended to include this endogenous decision making:\u0000Individuals choose their behaviour to optimise a utility function,\u0000self-consistently giving rise to population behaviour. Here we study the\u0000properties of the resulting Nash equilibria, in which no member of the\u0000population can gain an advantage by unilaterally adopting different behaviour.\u0000We leverage a new analytic solution to obtain, (1) a simple relationship\u0000between rational social distancing behaviour and the current number of\u0000infections; (2) new scaling results for how the infection peak and number of\u0000total cases depend on the cost of contracting the disease; (3) characteristic\u0000infection costs that divide regimes of strong and weak behavioural response and\u0000depend only on the basic reproduction number of the disease; (4) a closed form\u0000expression for the value of the utility. We discuss how these analytic results\u0000provide a deep and intuitive understanding into the disease dynamics, useful\u0000for both individuals and policymakers. In particular the relationship between\u0000social distancing and infections represents a heuristic that could be\u0000communicated to the population to encourage, or \"bootstrap\", rational\u0000behaviour.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141573726","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Consistent Conjectures in Dynamic Matching Markets","authors":"Laura Doval, Pablo Schenone","doi":"arxiv-2407.04857","DOIUrl":"https://doi.org/arxiv-2407.04857","url":null,"abstract":"We provide a framework to study stability notions for two-sided dynamic\u0000matching markets in which matching is one-to-one and irreversible. The\u0000framework gives centerstage to the set of matchings an agent anticipates would\u0000ensue should they remain unmatched, which we refer to as the agent's\u0000conjectures. A collection of conjectures, together with a pairwise stability\u0000and individual rationality requirement given the conjectures, defines a\u0000solution concept for the economy. We identify a sufficient\u0000condition--consistency--for a family of conjectures to lead to a nonempty\u0000solution (cf. Hafalir, 2008). As an application, we introduce two families of\u0000consistent conjectures and their corresponding solution concepts:\u0000continuation-value-respecting dynamic stability, and the extension to dynamic\u0000markets of the solution concept in Hafalir (2008), sophisticated dynamic\u0000stability.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141573723","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Information Greenhouse: Optimal Persuasion for Medical Test-Avoiders","authors":"Zhuo Chen","doi":"arxiv-2407.02948","DOIUrl":"https://doi.org/arxiv-2407.02948","url":null,"abstract":"Patients often delay or reject medical tests due to information avoidance,\u0000which hinders timely reception of necessary treatments. This paper studies the\u0000optimal information policy to persuade an information-avoidant patient to\u0000undergo the test and make the best choice that maximizes his health. The\u0000patient sequentially decides whether to take the test and the optimal treatment\u0000plan. The information provided is about the background knowledge of the\u0000disease, which is complementary with the test result, and disclosure can take\u0000place both before and after the test decision. The optimal information policy\u0000depends on whether the patient is willing to be tested when he is completely\u0000pessimistic. If so, the optimal policy features textit{preemptive warning}:\u0000the disclosure only takes place before the test, and the bad news guarantees\u0000the patient to be tested and be treated even without further information. If\u0000not, the optimal policy constructs an textit{information greenhouse}: an\u0000information structure that provides high anticipatory utility is committed when\u0000the patient is tested and the test result is bad. I consider extensions to\u0000general information preference and ex ante participation constraint.","PeriodicalId":501188,"journal":{"name":"arXiv - ECON - Theoretical Economics","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141551980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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