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on Contract Theory and Applications |
| By: | Aadityan Ganesh; Clayton Thomas; S. Matthew Weinberg |
| Abstract: | Transaction Fee Mechanism Design studies auctions run by untrusted miners for transaction inclusion in a blockchain. Under previously-considered desiderata, an auction is considered `good' if, informally-speaking, each party (i.e., the miner, the users, and coalitions of both miners and users) has no incentive to deviate from the fixed and pre-determined protocol. In this paper, we propose a novel desideratum for transaction fee mechanisms. We say that a TFM is off-chain influence proof when the miner cannot achieve additional revenue by running a separate auction off-chain. While the previously-highlighted EIP-1559 is the gold-standard according to prior desiderata, we show that it does not satisfy off-chain influence proofness. Intuitively, this holds because a Bayesian revenue-maximizing miner can strictly increase profits by persuasively threatening to censor any bids that do not transfer a tip directly to the miner off-chain. On the other hand, we reconsider the Cryptographic (multi-party computation assisted) Second Price Auction mechanism, which is technically not `simple for miners' according to previous desiderata (since miners may wish to set a reserve by fabricating bids). We show that, in a slightly different model where the miner is allowed to set the reserve directly, this auction satisfies simplicity for users and miners, and off-chain influence proofness. Finally, we prove a strong impossibility result: no mechanism satisfies all previously-considered properties along with off-chain influence proofness, even with unlimited supply, and even after soliciting input from the miner. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.07566 |
| By: | Sanxi Li; Jun Yu; Mingsheng Zhang |
| Abstract: | Search prominence may have a detrimental impact on a firm's profits in the presence of costly product returns. We analyze the impact of search prominence on firm profitability in a duopoly search model, considering the presence of costly product returns. Consumer match values are assumed to be independently and identically distributed across the two products. Our results show that the non-prominent firm benefits from facing consumers with relatively low match values for the prominent firm's products, thus avoiding costly returns. When return costs are sufficiently high, the prominent firm may earn lower profits than its non-prominent competitor. This outcome holds under both price exogeneity and price competition. Furthermore, the profitability advantage of prominence diminishes as return costs increase. Platforms that maximize ad revenue should consider retaining positive return cost for consumers rather than fully passing it on to firms. For e-commerce platforms, it is crucial to align product return policies with broader management objectives to optimize firm profitability. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.06791 |
| By: | Koustougeras, Leonidas (University of Manchester, School of Social Sciences); Santos, Manuel (University of Miami, School of Business Administration); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | We extend the prototypical models of corruption to a setting of multiple agents (donors) attempting to bribe the same body of officers. The model recognizes that corruption is a complex many-faceted phenomenon involving several layers of players (bureaucracies, committees, companies, and criminal partnerships) with dissimilar and conflicting interests. Three main ingredients drive corruption outcomes: competition among donors, uncertainty and coordination among the officers' types, and the individual payoffs of bribing. We analyze market failures and ineffciencies arising from the strategies and interactions of these parties. A policy maker may then want to design indirect anti-corruption policies based on triggering information asymmetries and adverse selection effects exploiting synergies within pools of officers and in this way impede the formation of certain criminal groups. |
| Keywords: | Corruption; bribe; adverse selection |
| JEL: | D71 D80 D82 D86 |
| Date: | 2024–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1028 |
| By: | Mendelson Haim; Zhu Mingxi |
| Abstract: | Online lending has garnered significant attention in IS literature, particularly platform lending, but direct (balance sheet) lending is increasingly critical. This paper explores optimal information acquisition strategies for direct online lenders, addressing the broader question: Should a decision-maker rely on multiple lean experiments or opt for a single grand experiment? We first examine a model where an online lender issuing unsecured loans maximizes its expected NPV at an exogenous interest rate, finding that a lean experimentation strategy is optimal. However, when the interest rate is endogenous, the choice between lean and grand experimentation depends on the demand elasticity. If elasticity is increasing or constant, the lender prefers a grand experiment, offering the same loan terms in each period. We also analyze consumer segmentation and demonstrate how higher income variability benefits the lender through more effective experimentation. In addition, we investigate hybrid information architectures that combine dynamic experimentation with traditional static models. Our results show that the hybrid architecture enhances lender profitability, offering a flexible approach that integrates sequential learning with static information. The study contributes to understanding how different information architectures affect lending strategies, experimentation, and profitability in online lending. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.05539 |