Truthful Revelation Research Articles

Screening with Privacy on (Im)persistency

Abstract I study how private information on the evolution of preference interacts with the dynamic screening contracts in a principal-agent framework with short-term commitment. Privacy on the evolution of preference preserves the agent’s future information advantage, even following truthful revelation of preference. This relaxes the ratchet effects if the consumer’s initial preference is skewedly distributed and the evolution of preference is distributed sufficiently evenly, while it strengthens the ratchet effects if otherwise. Through its relaxation or strengthening of the ratchet effects, privacy on (im)persistency implies an improvement or distortion in the equilibrium revelation of preference. I also characterize the respective implications on the optimal contracts. Such privacy is not welcomed by all types of the agent, for it redistributes the information rent among different types. Privacy on the evolution of preference sustains in equilibrium, as it is not optimal for the principal to perfectly screen the (im)persistency per se.

Implementation with a sympathizer

We study Nash implementation under complete information with the distinctive feature that the planner knows neither individuals’ state-contingent preferences (payoff states) nor how they correspond to the states of the economy on which the social goal depends. Our main question is whether or not the planner can extract only the essential information about individuals’ underlying preferences and simultaneously implement the given social goal. Our setup is especially relevant when the planner cannot use mechanisms asking for the full revelation of the payoffs states due to privacy and political correctness concerns or non-disclosure and confidentiality agreements. In economic environments with at least three individuals, we show that the planner may Nash implement a social goal while extracting only the essential information about the payoff states from the society whenever this goal has standard monotonicity properties and one of the individuals whose identity is not necessarily known to the planner and the other individuals, is a sympathizer. Vaguely put, such an agent is inclined toward the truthful revelation of the essential information about how states of the economy are associated with individuals’ preferences, while he is not inclined to reveal the realized ‘true’ state of the economy. Then, in every Nash equilibrium of the mechanism we design, all individuals truthfully disclose the same essential information about the payoff states.

Leveraging the Honor Code: Public Goods Contributions under Oath

Public good games are at the core of many environmental challenges. In such social dilemmas, a large share of people endorse the norm of reciprocity. A growing literature complements this finding with the observation that many players exhibit a self-serving bias in reciprocation: “weak reciprocators” increase their contributions as a function of the effort level of the other players, but less than proportionally. In this paper, we build upon a growing literature on truth-telling to argue that weak reciprocity might be best conceived not as a preference, but rather as a symptom of an internal trade-off at the player level between (i) the truthful revelation of their private reciprocal preference, and (ii) the economic incentives they face (which foster free-riding). In truth-telling experiments, many players misrepresent private information when this is to their material benefit, but to a significantly lesser extent than what would be expected based on the profit-maximizing strategy. We apply this behavioral insight to strategic situations, and test whether the preference revelation properties of the classic voluntary contribution game can be improved by offering players the possibility to sign a classic truth-telling oath. Our results suggest that the honesty oath helps increase cooperation (by 33% in our experiment). Subjects under oath contribute in a way which is more consistent with (i) the contribution they expect from the other players and (ii) their normative views about the right contribution level. As a result, the distribution of social types elicited under oath differs from the one observed in the baseline: some free-riders, and many weak reciprocators, now behave as pure reciprocators.

On the implementation of the median

In the single-peaked domain, the median rule is strategy-proof but not implementable in (Bayes–)Nash equilibrium by its associated direct mechanism. We define the value-based median mechanism that implements the median rule in (Bayes–)Nash equilibrium in the single-peaked domain under complete and incomplete information. Such a mechanism selects the median of the profile of different values announced by the agents (i.e., ignoring redundant announcements). The value-based median does not depend on agents’ beliefs (in line with robust mechanism design). In the case of incomplete information, it induces truthful revelation of preferences (in line with strategy-proofness) for almost all peaks. We present extensions of our results to generalized median rules and finite policy spaces and their limitations.

Pricing Multi-Interval Dispatch Under Uncertainty Part I: Dispatch-Following Incentives

Pricing multi-interval economic dispatch of electric power under operational uncertainty is considered in this two-part paper. Part I investigates dispatch-following incentives of profit-maximizing generators and shows that, under mild conditions, no uniform-pricing scheme for the rolling-window economic dispatch provides dispatch-following incentives that avoid discriminative out-of-the-market uplifts. A nonuniform pricing mechanism, referred to as the temporal locational marginal pricing (TLMP), is proposed. As an extension of the standard locational marginal pricing (LMP), TLMP takes into account both generation and ramping-induced opportunity costs. It eliminates the need for the out-of-the-market uplifts and guarantees full dispatch-following incentives regardless of the accuracy of the demand forecasts used in the dispatch. It is also shown that, under TLMP, a price-taking market participant has incentives to bid truthfully with its marginal cost of generation. Part II of the paper extends the theoretical results developed in Part I to more general network settings. It investigates a broader set of performance measures, including the incentives of the truthful revelation of ramping limits, revenue adequacy of the operator, consumer payments, generator profits, and price volatility under the rolling-window dispatch model with demand forecast errors.

OMCoRP: An Online Mechanism for Competitive Robot Prioritization

We propose a collision-avoiding mechanism for a group of robots moving on a shared workspace. Existing algorithms solve this problem either (a) in an offline manner using the source-destination information of all the robots or (b) in an online manner with cooperative robots. We take a paradigm shift to the setting with competitive robots, that may strategically reveal their urgency of reaching the destinations and design online mechanisms that take decisions on-the-fly, reducing the overhead of an offline planning. We propose a mechanism OMCoRP in this setting that ensures truthful revelation of the robots' priorities using principles of economic theory and provides locally efficient movement of the robots. It is free from collisions and deadlocks, and handles dynamic arrival of robots. In practice, this mechanism gives a smaller delay for robots of higher priority and scales well for a large number of robots without compromising on the path optimality too much.

Revenue and efficiency in pollution permit allocation mechanisms

A contentious design issue within pollution markets is the choice of initial allocation mechanism. Within this debate, auctions have become the predominant method of allocation. Although auctions provide potential gains—such as revenue generation, efficiency, and price discovery—these benefits are rarely realized due to firms submitting non-truthful bids. We propose a mechanism that can improve on existing auctions. We allow the regulator to determine the supply once all bids have been submitted. This incites truthful revelation of firms' private abatement costs, maximizes revenue, and allocates permits efficiently. This is relevant to existing permit auctions in the US and Europe. • We propose a mechanism that can improve on existing pollution auctions. • We allow the regulator to determine the supply once all bids have been submitted. • This incites truthful revelation of firms' private abatement costs. • This maximizes revenue, and allocates permits efficiently.

Salary History Bans and Wage Bargaining: Experimental Evidence

Motivated by recently passed laws in the United States banning inquiries about salary history, this experiment examines the impact of information about a player’s outside option in bargaining. The policy intention is studied by comparing private information to perfect information. Since the laws do not prevent voluntary revelation of salaries, a third treatment examines the impact of adding a truthful revelation choice by the informed party. I find that the signaling value of revelation decisions undermines the benefits of private information. A fourth treatment allows for outside options to be misrepresented. Overall, results suggest that these laws may not work as well as intended.

Channel Auctions

Standard auction formats feature either an upper bound on the equilibrium price that descends over time (as in the Dutch auction) or a lower bound on the equilibrium price that ascends over time (as in the English auction). We show that in some settings with costly information acquisition, auctions featuring both (viz., a narrowing channel of prices) outperform the standard formats. This Channel auction preserves some of benefits of both the English (truthful revelation) and Dutch (security for necessary information acquisition) auctions. Natural applications include housing, online auction sites like eBay, recording transactions on blockchains, and spectrum rights. This paper was accepted by Joshua Gans, business strategy.

Information advantage and minimum wage

In this study, I consider the effects of a minimum wage policy on an employment contract in the presence of asymmetric information. The key channel comprises how a minimum wage acts jointly with incentive compatibility (truthful revelation) given different levels of information advantage after signing the employment contract. This information advantage is captured by the timing of information arrival either before or after employment contracting. The minimum wage manipulates the rent-efficiency tradeoff with ex-ante information arrival, and it introduces a binding incentive compatibility with ex-post information arrival. I also discuss the implications of minimum wage legislation in terms of whether it might improve the efficiency of productivity, benefit low-skilled workers, and reduce inequality in society.

Efficient and Dominance Solvable Auctions with Interdependent Valuations

In auction environments in which agents have private values, the Vickrey auction induces agents to truthfully reveal their preferences and selects the efficient allocation accordingly. When the agents' valuations are interdependent, various generalizations of the Vickrey auction have been found which provide incentives for truthful revelation of all private information and preserve efficiency. However, these mechanisms generally do not provide the bidders with dominant strategies. The existing literature has therefore used a stronger equilibrium solution concept. In this paper we show that while the generalized VCG mechanism admits a multiplicity of equilibria, many of which are inefficient. We give conditions under which the efficiency equilibrium is the unique outcome of iterative elimination of ex post weakly dominated strategies. With two bidders, the standard single-crossing condition is sufficient. With more than two bidders, we show by example that a strengthening of the single-crossing condition is necessary.

Transparency and Collateral: The Design of CCPs' Loss Allocation Rules

This paper adopts a mechanism design approach to study optimal clearing arrangements for bilateral financial contracts in which an assessment of counterparty risk is crucial for efficiency. The economy is populated by two types of agents: a borrower and lender. The borrower is subject to limited commitment and holds private information about the severity of such lack of commitment. The lender can acquire information at a cost about the commitment of the borrower, which affects the assessment of counterparty risk. When truthful revelation by the borrower is not incentive compatible, the mechanism designer optimally trades off the value of information about the lack of commitment of the borrower with the cost of incentivizing the lender to acquire such information. Central clearing of these financial contracts through a central counterparty (CCP) allows lenders to mutualize their counterparty risks, but this insurance may weaken incentives to acquire and reveal informatio n about such risks. If information acquisition is incentive compatible, then lenders choose central clearing. If it is not, they may prefer bilateral clearing to prevent strategic default by borrowers and to economize on costly collateral. Central clearing is analyzed under different institutional features observed in financial markets, which place different restrictions on the contract space in the mechanism design problem. The interaction between the costly information acquisition and the limited commitment friction differs significantly in each clearing arrangement and in each set of restrictions. This results in novel lessons about the desirability of central versus bilateral clearing depending on traders' characteristics and the institutional features defining the operation of the CCP.

A mechanism design approach to child custody allocation in divorce

The paper considers a household family comprising of husband, wife and their child. Each parent consumes a private good and contributes voluntarily for a household public good which is child's welfare. When divorce occurs, the court has an ex ante transfer mechanism for the parents such that truthful revelation of valuation of child's welfare by each parent becomes strategyproof. Based on this, the sole custody of child is assigned to the parent having the highest value. We find that the transfer mechanism of the court fails to satisfy ex post individual rationality of some types of the parents. We also show that the court's mechanism bundled with an appropriate child support order achieves higher child's welfare and satisfies individual rationality only if the non-custodial parent is extremely altruistic in nature. Thus the paper successfully explains widespread prevalence of non-payment of child support from a perspective which was not discussed previously. More significantly, the paper ends with a policy prescription of replacing the conventional child support system by an equivalent amount of transfer from the government to the custodial parent, and shows that it has the potential to correct the intrinsic loopholes of child support. [ABSTRACT FROM AUTHOR]

Learning and Mechanism Design: An Experimental Test of School Matching Mechanisms with Intergenerational Advice

Abstract While the mechanisms that economists design are typically static, one-shot games, in the real world, mechanisms are used repeatedly by generations of agents who engage in them for a short period of time and then pass on advice to their successors. Hence, behaviour evolves via social learning and may diverge dramatically from that envisioned by the designer. We demonstrate that this is true of school matching mechanisms—even those for which truth-telling is a dominant strategy. Our results indicate that experience with an incentive-compatible mechanism may not foster truthful revelation if that experience is achieved via social learning.

Dynamic incentive effects of assignment mechanisms: Experimental evidence

AbstractOptimal assignment and matching mechanisms have been the focus of exhaustive analysis. We focus on their dynamic effects, which have received less attention, especially in the empirical literature: Anticipating that assignment is based on prior performance may affect prior performance. We test this hypothesis in a lab experiment. Participants first perform a task individually without monetary incentives; in a second stage, they are paired with another participant according to a pre‐announced assignment policy. The assignment is based on the first‐stage performance, and compensation is determined by average performance. Our results are largely consistent with a theory: Pairing the worst‐performing individuals with the best yields 20% lower first‐stage effort than random matching (RAM) and does not induce truthful revelation of types, which undoes any policy that aims to reallocate types based on performance. Perhaps surprisingly, however, pairing the best with the best yields only 5% higher first‐stage effort than RAM and the difference is not statistically significant.

Dynamic Contracting Under Soft Information

A principal delegates the running of a project to an agent subject to moral hazard over an infinite horizon, and cannot observe any of the outcomes. The agent sends reports at each instant t; naturally reports may be manipulated. Eliciting truthful revelation is necessary to the provision of effort, and is achievable by using audits and penalties. It requires that the continuation value of the agent be kept large enough, and the agent be terminated below a threshold; she receives an endogenous information rent. That rent is completely determined by the parameters of the moral hazard problem. The optimal audit trades off the instantaneous audit cost versus the drift of the cash flow process. The contract is implemented in standard financial securities. The effect of the governance problem on the cost of capital is subtle: a positive continuation utility at termination implies some recovery by financiers and so decreases the credit spread. But a deterioration in governance increases that spread sharply.

On Competing Mechanisms Under Exclusive Competition

We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents’ exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct examples showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals’ unilateral deviations toward arbitrary mechanisms.

On competing mechanisms under exclusive competition

We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Exclusive competition is at the center stage of recent analyses of markets with private information. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents' exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct an economic example showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals' unilateral deviations toward arbitrary mechanisms.

When Bribes are Harmless: The Power and Limits of Collusion-Resilient Mechanism Design

Collusion has long been the Achilles heel of mechanism design, as most results break down when participating agents can collude. The issue is more severe when monetary transfers (bribes) between agents are feasible, wherein it is known that truthful revelation and efficient allocation are incompatible. A natural relaxation that circumvents these impossibility results is that of coalitional dominance: replacing truthful revelation with the weaker requirement that all coalitions, whatever they may be, have dominant strategies. When a mechanism satisfies this property and is efficient, we call it collusion resilient. The goal of this paper is to characterize the power and limits of collusion resilient mechanisms. On the positive side, in a general allocation setting, we demonstrate a new mechanism which is collusion-resilient for surplus-submodular settings -- a large-class of problems which includes combinatorial auctions with gross substitutes valuations. We complement this mechanism with two impossibility results: (1) for combinatorial auctions with general submodular valuations, we show that no mechanism can be collusion-resilient, and (2) for the problem of collective decision making, we argue that any non-trivial approximation of welfare is impossible under coalitional dominance. Finally, we make a connection between collusion resilience and false-name-proofness, and show that our impossibility theorems strengthen existing results for false-name-proof mechanisms.

Prioritising environmental management investments using the Contingent Valuation Method

ABSTRACTAn innovative application of the Contingent Valuation Method in the context of prioritising and assessing investments in improving waterway health is described. The approach provides respondents with a feedback loop that allows for a reassessment of amounts bid across a range of investment categories. It allows respondents the opportunity to consider trade-offs between different categories of waterway health investment and between overall waterway health expenditure and spending on other goods and services. The process also reinforces the consequentiality of the survey, thus encouraging the truthful revelation of preferences, and reduces the risk of part-whole bias. The results provide policy-makers with cost-effective inputs into practical decision making contexts.