2023/03/21 by Victor Augias, Augias, Victor, Eduardo Perez-Richet +1
Decision Sciences · Economics, Econometrics and Finance · #Auction Theory and Applications #Complex Systems and Time Series Analysis #Economic theories and models #FOS: Economics and business #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2303.11805
openalex publication_date 2023/03/21 · openalex created_date 2023/03/23 · openalex updated_date 2026/07/28
We study how to optimally design selection mechanisms, accounting for agents' investment incentives. A principal wishes to allocate a resource of homogeneous quality to a heterogeneous population of agents. The principal commits to a possibly random selection rule that depends on a one-dimensional characteristic of the agents she intrinsically values. Agents have a strict preference for being selected by the principal and may undertake a costly investment to improve their characteristic before it is revealed to the principal. We show that even if random selection rules foster agents' investments, especially at the top of the characteristic distribution, deterministic "pass-fail" selection rules are in fact optimal.