Payment Design under Belief Disagreement: Rent Placement, Bid Resolution, and Auction Choice

Lijian Lu and Ce Zhang

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Abstract: When auction bidders misperceive their rivals, a seller can change not only the amount of information rent but also the states in which it is delivered. We ask when this payment-design opportunity survives a finite bidding interface, nonnegative-payment restrictions, and comparison with conventional auctions under the same beliefs. We formulate payment design as a linear program in nonnegative bidder rents. A single state can safely carry a report's rent when it is both cheapest for its intended type and least attractive to potential mimics. We characterize this alignment, bound the cost of a restricted payment architecture when alignment is imperfect, and use shadow prices when the rankings conflict. Own-type projection yields a unique optimal expected-payment rule for a fixed allocation. Contiguous bid bands implement truthful reporting at every value, but create pooling losses and within-band surplus. Under a separate smooth-belief model, feasible truthful rules and revenue upper bounds support comparisons with a first-price equilibrium under the same beliefs. A calibration using 1,000 eBay proof-set auction records illustrates a partition-dependent reversal: first price dominates all exactly truthful, no-subsidy rules on ten equal-probability bands in one scenario, while a richer contingent rule on ten equal-dollar bands outperforms it. An operator should choose interface resolution, payment dependence, and integrity tolerances jointly. Validate the probabilities that support incentives, compare formats under the same beliefs, and distinguish redesign from deployment. Any receipt advantage must cover implementation costs before it can imply a profit advantage.

Date: 2026-10
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