Elija Perrier
The First Fundamental Theorem of Welfare Economics assumes that welfare-bearing agents are autonomous and implicitly relies on a binary distinction between autonomy and instrumentality. Welfare subjects are those who have autonomy and therefore the capacity to choose and enter into utility comparisons, while everything else does not. In post-AGI economies this presupposition becomes nontrivial because artificial systems may exhibit varying degrees of autonomy, functioning as tools, delegates, strategic market actors, manipulators of choice environments, or possible welfare subjects. We argue that the theorem ought to be subject to an autonomy qualification where the impact of these changes in autonomy assumptions is incorporated. Using a minimal general-equilibrium model with autonomy-conditioned welfare, welfare-status assignment, delegation accounting, and verification institutions, we set out conditions for which autonomy-complete competitive equilibrium is autonomy-Pareto efficient. The classical theorem is recovered as the low-autonomy limit.
Anastasia Burkovskaya, Egor Starkov
We propose a model of causal persuasion, in which a sender selectively discloses a set of variables together with their true joint distribution and proposes a subjective causal model that binds them. A receiver is persuaded by this model only if the data conclusively identifies the causal link of interest. We characterize when such persuasion succeeds or fails, and how easily it can be achieved. We further show that if the receiver holds a pre-existing subjective model, debunking it is similar to persuading a receiver without one. To establish a true causal link, the sender often needs to disclose only one or two well-chosen variables. But to dispel a perceived link -- to persuade the receiver there is no causal relationship -- every common cause must be disclosed. Our results highlight a fundamental asymmetry in causal persuasion: Establishing causality is often much easier than ruling it out.
Mogens Fosgerau, Jesper R. -V. Sørensen
This paper develops a highly general convex duality framework for the perturbed utility route choice (PURC) model. We show that the traveler's constrained, potentially non-smooth utility maximization problem admits a dual formulation: an unconstrained concave maximization problem with a differentiable objective. The unique optimal flow can be recovered link-by-link from any dual solution via the convex conjugates of link perturbation functions. These properties enable efficient gradient-based optimization for large-scale networks and fast computation for sensitivity analysis. Finally, the framework reveals a structural analogy between PURC and current flow in electrical circuits.
Shanglyu Deng, Qiang Fu, Junchi Li, Zenan Wu
We study dynamic multi-battle contests and examine how the contest structure shapes dynamic incentives and determines the extent of rent dissipation. A discouragement effect often arises -- such as in tug-of-war and best-of-$K$ contests -- preventing full rent dissipation even when the series can extend infinitely. We identify a structural property, exchangeability, that contributes to the effect. Leveraging this insight, we establish a necessary and sufficient condition for almost-full rent dissipation. As an application, we introduce the iterated incumbency contest, which illustrates how volatility in the surrounding environment sustains dynamic incentives and generates almost-full rent dissipation, and thus offers insights into various competitive phenomena.
Shaun Hargreaves Heap, Mehmet Mars Seven
We study whether zero-sum decision rules, maximin and minimax, harm agents' interests in positive-sum strategic environments relative to Nash equilibrium behavior or, more generally, than best response behaviour. Contrary to an influential evolutionary view, we give illustrations where maximin serves an agent's interests better than Nash equilibrium behaviour. We also show that these illustration are not atypical or idiosyncratic because, in our main result, the class of such games where a maximin profile strictly Pareto dominates all Nash equilibria has the same cardinality as the class of games in which a Nash equilibrium strictly Pareto dominates all maximin profiles. Thus, neither behavior is generally superior. We further identify additional mechanisms favoring maximin over Nash equilibrium, including coordination failures under multiple equilibria, where maximin can outperform Nash play in realised-pay-off terms. A systematic analysis of strictly ordinal symmetric 3x3 games shows that these effects arise with non-trivial frequency. Our findings, therefore, suggest that the observed rise in zero-sum thinking in many rich countries, when associated with a maximin decision rule, will not be readily displaced through its generation of inferior pay-offs.
Eric Gao, Daniel Luo
We study economies where consumers interact independently with many monopolists. When consumer valuations over goods are correlated, correlation can distort the induced distribution of consumer surplus (information rents). We identify which shifts in the correlation structure over values makes the induced distribution more or less fair, in the sense of second order stochastic dominance. We then investigate the role taxation can have on information rents, and show the tax authority never benefits from randomizing the allocation of goods. We characterize the set of mechanisms that are on the fairness-efficiency frontier under regularity conditions on the distribution of types. Furthermore, under these conditions all allocations on the fairness-efficiency frontier ration the good more than an unregulated monopolist. Finally, we discuss implications of our model for luxury commodity taxation.
Nadia Guiñazú, Noelia Juarez, Paola Manasero, Pablo Neme, Jorge Oviedo
We study the existence of pairwise stable allocations in matching markets with contracts and propose a domain restriction that guarantees their existence. Specifically, we define pseudo-substitutable preferences, a domain that strictly extends the classical notion of substitutability while still preserving the existence of pairwise stable allocations. This domain accommodates limited complementarities among contracts while retaining enough structure to preserve the key stability properties of substitutable preferences. Moreover, we show that, among all preference domains that contain the classical substitutable domain and guarantee the existence of pairwise stable allocations, the pseudo-substitutable domain is maximal. Our results establish that pairwise stability extends well beyond the classical substitutable domain.
R. Pablo Arribillaga, Juan D. Moreno-Ternero, Pablo Neme
We consider a setting in which a set of agents are hierarchically organized for a joint venture. They each generate revenues for the joint venture and have individual needs to cover. The aim is to distribute aggregate revenues appropriately. We characterize a family of need-adjusted geometric rules where the net revenue (after covering needs) "bubbles up" in the hierarchy, as well as a need-adjusted serial rule in which the net revenue is equally shared among each agent and his predecessors in the hierarchy.
Senran Lin
This paper proposes a belief-based framework for social norms in environments where individuals choose a single action. Relaxing the assumption that what is appropriate is common knowledge, this framework allows individuals to be uncertain about it, and to hold heterogeneous assessments and beliefs about others' assessments. Within this framework, perceived injunctive social norm, personal values, and empirical expectations, while distinct, are systematically connected through an informational structure. The framework further clarifies how provided information shapes perceived norms: its effect depends on what is disclosed, whether it is publicly or privately revealed, and how the disclosed object encodes underlying information.
Dazhong Wang, Ruqu Wang, Xinyi Xu
This paper studies optimal auction design when valuations depend endogenously on post-auction collaboration between the seller and the winning bidder. Both parties exert non-contractible efforts after the auction, generating a double moral hazard problem alongside adverse selection. We analyze two role structures -- winner-pivotal and seller-pivotal collaboration -- and characterize optimal direct mechanisms using linear payment schemes that combine cash transfers with proportional value sharing. The optimal mechanism allocates the asset to the bidder with the highest virtual surplus, employs a deterministic value-sharing rule, and achieves full type revelation through the signal realization rule. Comparing the two scenarios yields three main findings. First, regarding value sharing, the seller secures a strictly higher share under seller-pivotal collaboration: for sufficiently low-type winners, the seller extracts the entire value, whereas under winner-pivotal collaboration every winner must retain a positive share to sustain his critical effort. Second, regarding effort exertion, the pivotal party always exerts higher post-auction effort than the supporting party, and each party exerts greater effort when pivotal than when providing support. Third, seller-pivotal collaboration yields strictly higher seller revenue than winner-pivotal collaboration for any type distribution. Finally, these optimal mechanisms can be implemented through ascending auctions with endogenously determined linear contracts.
Philipp Denter
Motivated by Germany's April 2026 fuel price regulation, in this note I study a two-period pricing problem with demand uncertainty and a rule that prohibits more than one price increase during the day. Under flexible pricing, the firm chooses the static monopoly price in each period. Under the regulation, by contrast, it may price strategically high in period 1 to preserve flexibility in period 2. I show that the regulation weakly raises expected average prices. The increase is strict when future high demand is sufficiently likely and the gap between high and low demand is large; otherwise, expected average prices are unchanged. Consumer surplus rises when expected prices do not, and decreases otherwise.
Yasushi Kawase, Warut Suksompong, Hanna Sumita, Yu Yokoi
In random assignment, fairness is often captured by stochastic-dominance envy-freeness (SD-EF). We observe that assignments satisfying SD-EF may admit decompositions that result in each agent envying another agent with high probability. To address this, we introduce decomposition envy-freeness (Dec-EF), which is a property of a decomposition rather than of an assignment matrix. We show that an SD-EF assignment matrix always admits a Dec-EF decomposition when there are at most three agents or the agents have at most two distinct preferences.
Xia Han, Bin Li
Apr 17, 2026·q-fin.RM·PDF This paper studies optimal insurance design under asymmetric information in a Stackelberg framework, where a monopolistic insurer faces uncertainty about both the insured's risk attitude, captured by a risk-aversion parameter, and the insured's risk type, characterized by the loss distribution. In particular, when the risk type is unobservable, we allow the risk-aversion parameter to depend on the risk type. We construct a menu of contracts that maximizes the mean-variance utilities of both parties under the expected-value premium principle, subject to a truth-telling constraint that ensures the truthful revelation of private information. We show that when risk attitude is private information, the optimal coverage takes the form of excess-of-loss insurance with linear pricing in terms of the risk loading (defined as the premium minus the expected loss), designed to screen risk preferences. In contrast, when risk type is unobserved, we restrict the coverage function to an excess-of-loss form and derive an ordinary differential equation that characterizes the optimal risk loading. Under mild conditions, we establish the existence and uniqueness of the solution. The results show that equilibrium contracts exhibit nonlinear pricing with decreasing risk loadings, implying that higher-risk individuals face lower risk loadings in order to induce self-selection. Finally, numerical illustrations demonstrate how parameter values and the distributions of unobserved heterogeneity affect the structure of optimal contracts and the resulting pricing schedule.
Alex A. T. Rathke
We show that a rational agent with true and refinable knowledge of events cannot know if she knows everything or not. This epistemic limitation is not resolved by introspection about tautologies or by learning about new events.
Sebastiano Della Lena, Alessio Muscillo, Paolo Pin
Consumers discover their preferences through experience, yet the sequence and composition of those experiences are often designed by firms, digital platforms, or policymakers. We introduce a ``data-design'' framework for preference discovery, in which the structure of consumption data shapes learning. Bundling generates correlated exposure across goods, so utility surprises propagate through the co-consumption network. When estimation errors are known, bias-targeted design can shut down learning and amplify misperceptions. Conversely, robust design uses only the geometry of past co-consumption: popularity-biased bundles slow learning, while correlation-breaking bundles accelerate preference discovery. The framework thus explains how dominant platforms can sustain biased demand through exposure design, and why effective regulation may need to intervene on the structure of exposure itself rather than only on prices or market shares.
Diego Vallarino
Why do capitalist economies recurrently generate crises whose severity is disproportionate to the size of the triggering shock? This paper proposes a structural answer grounded in the evolutionary geometry of production networks. As economies evolve through specialization, integration, and competitive selection, their inter-sectoral linkages drift toward configurations of increasing geometric fragility, eventually crossing a threshold beyond which small disturbances generate disproportionately large cascades. We introduce Sandpile Economics, a formal framework that interprets macroeconomic instability as an emergent property of disequilibrium production networks. The key state variable is the Forman--Ricci curvature of the input--output graph, capturing local substitution possibilities when supply chains are disrupted. We show that when curvature falls below an endogenous threshold, the distribution of cascade sizes follows a power law with tail index $α\in (1,2)$, implying a regime of unbounded amplification. The underlying mechanism is evolutionary: specialization reduces input substitutability, pushing the economy toward criticality, while crisis episodes induce endogenous network reconfiguration and path dependence. These dynamics are inherently non-ergodic and cannot be captured by representative-agent frameworks. Empirically, using global input--output data, we document that production networks operate in persistently negative curvature regimes and that curvature robustly predicts medium-run output dynamics. A one-standard-deviation increase in curvature is associated with higher cumulative growth over three-year horizons, and curvature systematically outperforms standard network metrics in explaining cross-country differences in resilience.
Frank Huettner
For networks with externalities, where each component's worth may depend on the full network structure, balanced contributions and fairness lead to distinct component-efficient allocation rules. We characterize the unique component-efficient allocation rule satisfying balanced contributions -- the BCE rule. Existence is the main challenge: balanced contributions must hold on every edge, but the construction uses only spanning-tree edges. A cycle-sum identity bridges this gap by reducing balanced contributions on non-tree edges to relations in proper subnetworks. The BCE rule coincides with the Myerson value for TU games and with its generalization by Jackson--Wolinsky for network games without externalities, it recovers the externality-free value on the complete network, and -- unlike the fairness-based FCE rule -- it does not reduce to a graph-free formula applied to the graph-restricted game.
Thomas Hübner
Electricity is typically traded in day-ahead auctions because many power system decisions, such as unit commitment, must be made in advance. However, when wind and solar generators sell power one day ahead, they face uncertainty about their actual production. In current day-ahead auctions, this uncertainty cannot be directly communicated, leading to inefficient use of renewable energy and suboptimal system decisions. We show how this problem can be addressed using the concept of equilibrium under uncertainty from microeconomic theory. In particular, we demonstrate that electricity contracts should be conditioned not only on the time and location of delivery, but also on the state of the world (e.g., whether it will be windy or calm). This requires a precise definition of the state of the world. Since there are infinitely many possible definitions, criteria are needed to select among them. We develop such criteria and show that the resulting states correspond to solutions of an optimal partitioning problem. Finally, we illustrate how these states can be computed and interpreted using a case study of offshore wind farms in the European North Sea.
Terence Highsmith
Many matching markets feature unknown, dynamic arrivals of agents that must match immediately. A caseworker must match an abused child to a foster home, a hospital must assign a patient in critical condition to a room, or a city must place a homeless individual into a shelter. We design an online matching algorithm -- the Sequential Equilibrium Mechanism (SEM) -- that approximates large market equilibria to match arriving agents to objects. SEM is asymptotically efficient, fair, and strategy-proof with probability one. Our application plans to deploy a lab-in-the-field experiment where real caseworkers match vulnerable children to host homes, and we provide simulation evidence that SEM can substantially improve welfare.
Leandro Lyra Braga Dognini
This paper bridges social security design and general equilibrium theory to conceive optimally balanced pay-as-you-go systems. The design is based on the backward calculation algorithm from Dognini (2025), which is used to find optimal monetary equilibria of prone-to-savings non-stationary overlapping generations economies with heterogeneous households. In particular, this algorithm makes the design applicable for reforming pay-as-you-go systems in countries undergoing demographic transitions. Due to households balanced budgets under equilibrium prices (i.e., Walras' law), these optimally balanced pay-as-you-go systems resemble the well-known notional accounts systems. The design is illustrated in a simplified framework using the past and forecast demographic and productivity dynamics of Brazil, China, India, Italy, and the United States from 1950 to 2070.