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on Economic Design |
| By: | Dirk Bergemann (Yale University); Marek Bojko (Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study mechanism design when agents have private preferences and private information about a common payoff-relevant state. We show that standard message-driven mechanisms cannot implement socially efficient allocations when agents have multidimensional types, even under favorable conditions. To overcome this limitation, we propose data-driven mechanisms that leverage additional post-allocation information, modeled as an estimator of the payoff-relevant state. Our data-driven mechanisms extend the classic Vickrey-Clarke-Groves class. We show that they achieve exact implementation in posterior equilibrium when the state is either fully revealed or the utility is affine in an unbiased estimator. We also show that they achieve approximate implementation with a consistent estimator, converging to exact implementation as the estimator converges, and present bounds on the convergence rate. We demonstrate applications to digital advertising auctions and large language model (LLM)-based mechanisms, where user engagement naturally' reveals relevant information. |
| Date: | 2025–03–17 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2418r1 |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Stephen Morris (Dept. of Economics, MIT) |
| Abstract: | We analyze a nonlinear pricing model where the seller controls both product pricing (screening) and buyer information about their own values (persuasion). We prove that the optimal mechanism always consists of finitely many signals and items, even with a continuum of buyer values. The seller optimally pools buyer values and reduces product variety to minimize\ informational rents. We show that value pooling is optimal even for finite value distributions if their entropy exceeds a critical threshold. We also provide sufficient conditions under which the optimal menu restricts offering to a single item. |
| Keywords: | Nonlinear Pricing, Screening, Bayesian Persuasion, Finite Menu, Second-Degree Price Discrimination, Recommender System |
| JEL: | D44 D47 D83 D84 |
| Date: | 2025–03–06 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2338r3 |
| By: | Dirk Bergemann (Yale University); Alessandro Bonatti (Massachusetts Institute of Technology); Nicholas Wu (Yale University) |
| Abstract: | In digital advertising, the allocation of sponsored search, sponsored product, or display advertisements is mediated by auctions. The generation of bids in these auctions for attention is increasingly supported by auto-bidding algorithms and platform-provided data. We analyze the equilibrium properties of a sequence of increasingly sophisticated auto-bidding algorithms. First, we consider the equilibrium bidding behavior of an individual advertiser who controls the auto bidding algorithm through the choice of their budget. Second, we examine the interaction when all bidders use budget-controlled bidding algorithms. Finally, we derive the bidding algorithm that maximizes the platformÕs revenue while ensuring all advertisers continue to participate. |
| Date: | 2025–03–02 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2429 |
| By: | Sanyyam Khurana (Ashoka University) |
| Abstract: | In this paper, we consider resale in efficient auctions. The potential gains from trade arise from a delay in resale which reduces the bidders’ values. We consider two information states during resale: (a) complete information where all the bids are revealed and (b) incomplete information where no bids are revealed. Under complete information, we establish revenue equivalence between the first- and second-price auction for a family of trade rules where the market power is distributed between the reseller and buyer. We also show that, if all the market power lies with the reseller (resp., buyer), it is optimal (resp., not) to reveal information. |
| Keywords: | efficiency; information revelation; private value; resale; symmetry; time delay |
| Date: | 2024–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:ash:wpaper:128 |
| By: | Arkarup Basu Mallik (ISI Kolkata); Mihir Bhattacharya (Ashoka University) |
| Abstract: | We consider a model of preference aggregation when a single public good has to be chosen. We do not impose any restrictions on the preferences. We show the impossibility of contraction consistent (CC), anonymous and Pareto efficient social choice functions. We provide a characterization of the priority based social choice function (Priority Rule) which satisfies a weaker version of consistency called Efficient Dominance (ED). ED is a Weak Axiom of Revealed Preference (WARP) type of consistency criterion over the set of Pareto efficient alternatives. We show that the Priority Rule is the only social choice function that satisfies Pareto efficiency and Efficient Dominance. |
| Date: | 2025–03–06 |
| URL: | https://d.repec.org/n?u=RePEc:ash:wpaper:142 |
| By: | Arkarup Basu Mallik (ISI Kolkata); Mihir Bhattacharya (Ashoka University); Anuj Bhowmik (ISI Kolkata) |
| Abstract: | We provide a model of individual choice in which the decision maker is constrained and chooses from a subset of the available alternatives given a set of attributes. We introduce an attribute competition filter which provides conditions under which an alternative continues to be considered from a subset of alternatives and a subset of attributes. We use two axioms to characterize a rational choice function from the consideration sets, Single Reversal in Attributes (SRA) and Contraction Consistency with Fixed Attributes (CCFA). The former only allows for a single reversal in choice from a subset of the attributes, while the latter requires choices to be contraction consistent. We show that a choice function from consideration sets under attributes is rationalizable if and only if the choice function satisfies SRA and CCFA. In another section, we consider the dual problem: The alternatives considered are exogenously visible i.e. all the alternatives are considered and limited attention is paid to the attributes available while the preference relation is over the set of alternatives via individual attributes. JEL classification: D00, D01 |
| Keywords: | limited attention, attributes, choice reversals |
| Date: | 2024–11–27 |
| URL: | https://d.repec.org/n?u=RePEc:ash:wpaper:135 |