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Applied and bridge studies study record
Methods & measurementWhy Incentive Compatibility Is Not Welfare Completion
STATUS · Manuscript in progressSSRN · Not yet posted
MECHANISM
Identify the incentive structure and the condition that would falsify the claim.
RULE CHANGE
Read the intervention only after the paper shows how the current payoff space fails to support system welfare.
READER USE
Use the summary to see where private gain creates system exposure, then check the study record.
Reading βW
βW means annual system-welfare loss divided by annual industry revenue Π. Revenue is the denominator, never profit, earnings, or net income; ΔW and Π must use the same domain, same time period, and same activity boundary. See the βW methodology manual.
Contribution — what this adds to the conversation
Contributes to mechanism design, public finance, and regulatory design literatures with formal theorems and operational protocol.
WHAT'S NEW · Formalizes the Incentive-Welfare Gap and βW metric; proves Conflictoring necessity. Novel synthesis of mechanism design, public finance, and welfare accounting.
The paper establishes that incentive compatibility (IC) does not guarantee welfare completion. Using the Missing System Theory, it shows that bilateral mechanisms structurally exclude system welfare, leading to 'Hollow Wins' where parties gain while the system degrades. The Incentive-Welfare Gap is formalized via the βW metric, measuring system welfare destruction per dollar of revenue. Across 58 ranked revenue-ratio domains, median βW exceeds 5. The Conflictoring Protocol—introducing a third agent tied to system welfare—is necessary to achieve Win-Win-Win outcomes. Policy implications include shifting from IC verification to triadic welfare auditing, unlocking an estimated $72 trillion annual Reform Dividend.