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We examine the optimal selling strategy of a monopolist facing consumers who have privately known demands, and some of whom have limited abilities to misrepresent their preferences. We derive the optimal mechanism in this environment and characterize its properties. In particular, we show that communication with consumers plays a significant role in the process of screening. Consumers who have better abilities to misrepresent information benefit from the presence of consumers who lack such abilities. Whenever the fraction of the latter group of consumers is positive, there is no exclusion: It is optimal for the firm to supply a positive quantity of the good to all consumers whose valuations exceeds the marginal cost of production. Our analysis reflects the view that the environments where individuals can costlessly and effortlessly manipulate and misrepresent their private information, although standard in economics, represent an extreme point in the spectrum of various possibilities. In fact, available evidence suggests that at least some individuals have limited abilities to misrepresent their true types and imitate others' behavior.

I examine a situation where a firm chooses to locate a new factory in one of several jurisdictions. The value of the factory may differ among jurisdictions and it depends on the private information held by each jurisdiction. Jurisdictions compete for the location of the new factory. This competition may take the form of expenditures already incurred on infrastructure, commitments to spend on infrastructure, tax incentives or even cash payments. The model combines two elements that are usually considered separately; competition is desirable because we want the factory to be located in the jurisdiction that values it the most, but competition in itself is wasteful. I show that the expected total amount paid to the firm under a large family of arrangements is the same. Moreover, I show that the ex-ante optimal mechanism - that is, the mechanism that guarantees that the firm chooses the jurisdiction with the highest value for the factory, minimizes the total expected payment to the firm, and balances the budget in an ex-ante sense - can be implemented by running a standard auction and subsidizing participation.

A vertically integrated firm owns an essential input and operates on the downstream market. There is a potential entrant in the downstream market. Both firms use the same essential input. The regulator's objectives are (i) to ensure financing of the essential input; and (ii) to generate competition in the downstream market. The regulatory mechanism grants non-discriminatory access of the essential facility to the entrant provided it pays a two-part tariff to the incumbent. The optimal mechanism generates inefficient entry. The inefficient entry captures the trade-off between market efficiency and infrastructure financing resulting from incomplete information and non-discriminatory access.

We model an IPO company's optimal response to the presence of sentiment investors and short sale constraints. Given regulatory constraints on price discrimination, the optimal mechanism involves the issuer allocating stock to 'regular' institutional investors for subsequent resale to sentiment investors, at prices the regulars maintain by restricting supply. Because the hot market can end prematurely, carrying IPO stock in inventory is risky, so to break even in expectation regulars require the stock to be underpriced - even in the absence of asymmetric information. However, the offer price still exceeds fundamental value, as it capitalizes the regulars' expected gain from trading with the sentiment investors. This resolves the apparent paradox that issuers, while shrewdly timing their IPOs to take advantage of optimistic valuations, appear not to price their stock very aggressively. The model generates a number of new and refutable empirical predictions regarding the extent of long-run underperformance, offer size, flipping, and lock-ups.

This paper presents a new motion base design for creating virtual acceleration using a parallel cable-drive mechanism architecture, WARP. It has several advantages: 1) the rotational motion range is large, 2) the traveling room can be grounded on the floor, 3) a scene projection is possible for all the walls, and 4) the redundancy improves the safety for cut of cables. Optimal mechanism design is performed for a class of WARP mechanisms to develop a prototype. A trajectory planning method for long-term virtual acceleration is proposed. A low frequency component of acceleration is realized by rotational motion, and a high frequency is produced by translational motion. Experimental results creating the virtual acceleration of jet coaster trajectories demonstrated the effectiveness of this new design.

This paper considers bidding environments with pure common values, in which bidders are not equally well informed. We construct the optimal selling mechanism and ask how bidder asymmetry affects the seller's expected payoff. With an optimal mechanism, the seller benefits from bidder asymmetry: her expected revenue increases if the bidders are more asymmetrically informed.

This paper provides an optimal mechanism for the introduction of temporal constraints into linear imaging formulations of the inverse electroencephalography problem. The method is based on derivation of a “virtual-SVD,” an extension of generalized singular value decomposition to the setting of random matrices. Surprisingly, the formalism is superior, in principle, to standard regularization methods even in the absence of known temporal constraints. Investigation of this basic temporally unconstrained setting was undertaken to illustrate the application of the method, and as a necessary first step in its systematic evaluation. Although abstract simulations demonstrate superior accuracy for the virtual-SVD method as compared with standard methods, investigation of a particular realistic simulation involving spatiotemporally distributed temporal lobe interictal spikes indicates that significant improvement in solution estimate quality under temporally unconstrained conditions may be limited to a very narrow range of the signal-to-noise ratio (particularly in the context of a markedly row-deficient transfer matrix). These results underline the prospective importance of investigation of the efficacy and feasibility of application of temporal constraints (such as those resulting from knowledge of the general time series format of epilepsy associated wave forms, evoked potentials, etc.) within the derived formalism. © 2000 Biomedical Engineering Society. PAC00: 8719Nn, 8780Tq

Emerging economies are exposed to severe and sudden shortages of international financial resources. Yet domestic agents seem not to undertake enough precautions against these sudden stops. Following our previous work, we highlight in this paper the central role played by limited domestic development in ex-ante (insurance) and ex-post (spot) financial markets in generating this collective undervaluation of external resources and insurance. Within this structure, this paper studies several canonical policies to counteract the external underinsurance. We do this by first solving for the optimal mechanism given the constraints imposed by limited domestic financial development, and then considering the main - in terms of the model and practical relevance - implementations of this mechanism.

We analyze a principal's ability to discriminate between honest and dishonest agents, who have private information about the circumstances of the exchange. Honest agents reveal circumstances truthfully as long as the mechanism is sufficiently fair: the probability that an equilibrium allocation is chosen by an agent who is lying should not be too large. Without intolerance for lying the agent is given proper incentives if dishonest and zero rent if honest. With even a small intolerance for lying the optimal mechanism is discontinuously altered. It may still involve ethics screening whereby some allocation chosen by a dishonest agent is never chosen by an honest agent. It happens either when the dishonest is overstating circumstances, or when the principal is forced to allow for some suboptimal announcements due to an excessive intolerance for lying. With limited intolerance for lying, ethics screening allows for doing better than in the standard setup where the agent is dishonest with certainty, even if honesty is unlikely. However, if intolerance for lying is too strong, the principal cannot improve upon the standard setup.

The paper models the practice of charging bribes for faster delivery of essential services in third world countries. It then examines the possibility of curbing corruption by supervision, and secondly, by introducing competition among delivery agents. It is argued that a supervisory solution eludes the problem because no hard evidence of the reduction of corruption can be established for this type of offenses. It is also shown that using more than one supplier cannot eliminate the practice, and the bribe paying part of the market attains a determinate proportion as the number of suppliers increases. However the bribe rate and average waiting time come down at a diminishing rate with increase in the number of suppliers, and this property can be used to determine an optimal number of suppliers.

We consider optimal capital allocation and managerial compensation mechanisms for decentralized firms when division managers have an incentive to misrepresent project quality and to minimize privately costly but value-enhancing effort. We show that in the optimal mechanism firms always under invest in capital relative to a naive application of the net present value (NPV) rule. We make a number of novel cross-sectional predictions about the severity of the under investment problem and the composition of managerial compensation contracts. We also find that firms will optimally give greater performance-based pay (at the expense of fixed wages) to managers of higher quality projects to mitigate the incentive for managers to overstate project quality. Thus, managers may receive greater performance-based pay because they manage higher-quality projects, not that greater performance-based pay causes firm value to increase.

This paper studies "voluntary bargaining agreements" in an environment where preferences over an excludable public good are private information. Unlike the case with a non-excludable public good, there are non-trivial conditions when there is significant provision in a large economy. The provision level converges in probability to a constant, which makes it possible to approximate the optimal solution by a simple fixed fee mechanism, which involves second degree price discrimination if identities are informative about the distribution of preferences. Truth-telling is a dominant strategy in the fixed fee mechanism. Being able to limit a public goods' consumption does not make it a turn-blue private good. For what, after all, are the true marginal costs of having one extra family tune in on the program. They are literally zero. Why then limit any family which would receive positive pleasure from tuning in on the program from doing so? [Samuelson [24], pp 335]

This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke-Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms generally avoid budget deficits and prevent excessive entry.

In some countries, it is common that initial public offerings (IPOs) are preceded by forward ("when-issued") trading of the shares; in the US, such trading is prohibited. We analyze the effect of when-issued trading on the pricing and allocation of IPO shares. We demonstrate that the optimal selling mechanism in the presence of when-issued trading differs qualitatively from the optimal mechanism if such trading is prohibited. Furthermore we show that trading rules in the when-issued market can be designed so that allowing when-issued trading results in an increase in expected issue proceeds.

We propose a traffic management mechanism for connectionless networks on top of ATM infrastructures. The mechanism combines flow control at the packet layer (connectionless layer) and dynamic bandwidth allocation of the ATM connections interconnecting the connectionless servers of the connectionless network. Optimal mechanisms are obtained through Markov decision processes for a model of two tandem queues. The obtained bandwidth gain motivates the analysis of such mechanisms in a more realistic model. The simulation of a more detailed model of a connectionless network allows us to conclude on the favorable impact of dynamic resource allocation on the bandwidth gain and on the reduction of the sensitivity of the performances of the network with respect to the characteristics of the traffic. The traffic management mechanism implemented in the simulator are motivated by the optimal mechanism obtained using the analytical model.

In a procurement contract the Administration usually has some prior information about the quality of the bidding firms. The goal of this article is to characterize the optimal mechanism in such a situation, when firms have private information about their costs. The optimal mechanism selects low-quality firms more often than it would be efficient with perfect information. We also compare this mechanism with others frequently used by the Spanish Administration such as the first price sealed bid auction and the previous admission auction.

One of the most important problems in modern economics is concerned with the interaction of incentives, information, and economic mechanisms that solve them. This is typically posed as the problem of designing an optimal mechanism using game theory. The solution concept that is used is that of Bayesian-Nash equilibrium (or refinements of that concept).

I analyze a durable-goods model that allows consumers' values to vary over time. The optimal mechanism for a monopolist is computed and compared to both the sales and leasing equilibria. I show that sales may implement the optimal strategy, and that the dominance of leasing over sales is not necessarily true. This implication is consistent with the prevalence of simple sales contracts in many markets. Copyright 2001 by the RAND Corporation.

In a model with moral hazard and assymmetric information, we show that it can be welfare-improving to differentiate patent lives when firms have different R&D productivities. A uniform patent life provides excessive R&D incentive to low-productivity firms, and too little to high ones. The optimally differentiated patent scheme can be implemented through a menu of patent lives (or renewals) and associated fees. We characterize the optimal mechanism, and use simulation analysis to compare it with existing patent renewal systems and to illustrate the potential welfare gains from the optimal policy.

A dynamic model with many sellers and buyers is constructed. Agents failing to trade may trade in the next period. An equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit. The distribution of buyer valuations is endogenous. An auction with efficient reserve is an optimal mechanism from each seller's point of view, in spite of the ability of any seller to alter the distribution of buyer types participating in the seller's mechanism by altering the mechanism. Copyright 1993 by The Econometric Society.

This paper attempts to select air optimum appendage design on the basis of the force or power needed to position the appendage. Three different appendage mechanisms were implemented to follow the same control law. It is shown that the mechanism that needs least power or force for its operation should be used in practice. Thus, in general, not only is the optimization of the control process required, but also important is the selection of the optimal mechanism configuration on the basis of the force or power needed for the mechanism operation. The results are shown numerically to control a tall building against wind forces.

Three mechanisms are considered that extend the standard fixed quantity auction: (I) sole sourcing with output chosen in advance by a buyer with downward-sloping demand; (II) sole sourcing with an output schedule based on revelation of cost parameters; and (III) multiple sourcing with output allocation across suppliers based on revelation of cost parameters. Procedures are characterized for the sole sourcing and multiple sourcing problems that implement the buyer's optimal mechanism.

The paper develops an approach from theory of organization systems with active elements. The notion of the functioning mechanism for a two—level active systems is defined, the problem of optimal mechanism design is stated and solved for a number of cases. An important indicator of the functioning mechanism, their decontralization degree, in introduced. The functioning mechanism are order partially in terms of the management centralization and the problem of selecting the centralization degree is formalized for hierarchical organizational systems (in particular, the functioning effectiveness of decentralized, partially, and completely contralized management structures in economic systems can be compared). The approach permits theoretical studies of economic mechanisms and developing and proving the soundness of advice on their improvement.

One of the more enjoyable pastimes life has to offer is iconoclasm. To be one of a small band which has the audacity to challenge the legitimacy of a venerated institution is an exciting experience. In the present instance, the venerated institution is the free-rider hypothesis. According to this con jecture, individuals will fail to reveal their full monetary evaluations of collective goods. This con jecture is often accompanied by the claim that decentralized mechanisms are incapable of pro viding such goods. Recently, a small band of researchers has devised a number of interesting tests of the free-rider hypothesis. The results are striking. Free-riding, it appears, is not as common an activity as is com monly supposed. Not surprisingly, some of the inconoclasts have concluded that decentralized mechanisms for providing collective goods may be practical after all. This paper extends an experiment which was performed by Brubaker [1]. The free-rider hypoth esis is tested against an alternative conjecture, the "joint contract hypothesis". To begin, a clearer articulation of some of the concepts involved is required.

Presented in this paper is an optimization technique for solving problems with objective functions which are sums of squared quantities with linear constraints. The technique is based on Gauss’ unconstrained method, but is able to move along constraint surfaces in such a way that when the technique terminates, the Kuhn-Tucker conditions are satisfied. The resulting approach, called the Gauss constrained method, is shown to be very efficient and effective in solving problems with highly nonlinear objective functions often existing in mechanism design problems.

Closed-form equations are presented which permit the synthesis of the planar four-bar double-rocker mechanism for coordinating the prescribed extreme positions. The method is well adapted to digital programming for obtaining optimal mechanism design. A numerical example is provided.

Our proposed methods employ learning and search techniques to estimate outcome features of interest as a function of mechanism parameter settings. We illustrate our approach with a design task from a supply-chain trading competition. Designers adopted several rule changes in order to deter particular procurement behavior, but the measures proved insufficient. Our empirical mechanism analysis models the relation between a key design parameter and outcomes, confirming the observed behavior and indicating that no reasonable parameter settings would have been likely to achieve the desired effect. More generally, we show that under certain conditions, the estimator of optimal mechanism parameter setting based on empirical data is consistent.

In recent decades, new optimization algorithms have attracted much attention from researchers in both gradient- and evolution-based optimal methods. Many strategy techniques are employed to enhance the effectiveness of optimal methods. One of the newest techniques is opposition-based learning (OBL), which shows more power in enhancing various optimization methods. This research presents a new edition of the Differential Evolution (DE) algorithm in which the OBL technique is applied to investigate the opposite point of each candidate of self-adaptive control parameters. In comparison with conventional optimal methods, the proposed method is used to solve benchmark-test optimal problems and applied to real optimizations. Simulation results show the effectiveness and improvement compared with some reference methodologies in terms of the convergence speed and stability of optimal results. © 2019 The Japan Society of Mechanical Engineers

In this paper we study the optimal file-sharing mechanism in a peer-to-peer network with a mechanism design perspective. This mechanism improves upon existing incentive schemes. In particular, we show that peer-approved scheme is never optimal and service-quality scheme is optimal only under certain circumstances. Moreover, we find that the optimal mechanism can be implemented by a mixture of peer-approved and service-quality schemes.