arXiv subjects

Peiran Xiao

Publications and source records attributed to Peiran Xiao.

3 recordsLinked to original sources

arXiv2026

Incentivizing Agents through Ratings

I study the optimal design of ratings to motivate an agent's investment in quality when transfers are unavailable. The principal designs a rating scheme that maps quality to a (possibly stochastic) signal. The agent privately knows his ability and chooses a quality level. A competitive market then offers the agent a wage equal to his expected quality given the signal. When restricted to deterministic ratings, lower censorship is optimal if the ability density is single-peaked, and pass/fail tests are optimal as well if the density is increasing. When randomization is allowed, lower censorship remains optimal if the ability density is log-concave or increasing, and pass/fail tests remain optimal if the density is increasing. By contrast, every optimal rating scheme involves randomization if the density is decreasing and sufficiently log-convex---roughly speaking, if intermediate ability is scarce relative to high and low ability.

econ.TH↗

arXiv2026

Tournaments with Managerial Discretion

We study tournaments with managerial discretion in hiring. A manager selects a coworker from a pool of candidates and then competes against him in a Lazear--Rosen--style tournament with a prize equal to a share of total output. A profit-maximizing principal sets the prize share together with a head start (or handicap)---an advantage (or disadvantage) in the output comparison---granted to the manager. The head start affects output through three channels: (i) encouraging the manager, (ii) discouraging the new hire, and (iii) inducing the manager to hire a stronger candidate. The hiring effect dominates the discouragement effect until the strongest candidate is hired; beyond that point, any further head start discourages the new hire more than it encourages the manager. The optimal contract therefore grants a head start just large enough to induce the manager to hire the strongest candidate.

econ.TH↗

arXiv2026

Allocating Positional Goods: A Mechanism Design Approach

I study the optimal allocation of positional goods, where consumers' concern for relative consumption creates externalities. Applications include luxury goods, priority services, education, and organizational hierarchies. Using a mechanism design approach, I characterize feasible allocations through a majorization condition. Under Myerson regularity, the revenue-maximizing mechanism fully separates participating buyers, with possible exclusion at the bottom. Selling a single level guarantees at least half the maximum revenue. When all buyers are served, restricting the seller to a single level increases consumer surplus under an increasing failure rate (IFR). When the seller is restricted to a single level, expanding coverage also benefits consumers under IFR but may harm them otherwise. I also characterize the welfare-maximizing mechanism with and without subsidies.

econ.TH↗