Pairwise Exchanges of Freely Replicable Goods with Negative Externalities

TL;DR

This paper models a multi-round, no-money exchange protocol for freely replicable goods with negative externalities, ensuring individual rationality, incentive-compatibility, and stability, addressing unique challenges posed by externalities and free replication.

Contribution

It introduces a novel exchange protocol that satisfies rationality, incentive-compatibility, and stability in a setting with negative externalities and free goods, which differs from classical models.

Findings

The protocol guarantees individual rationality for agents.

It ensures agents are incentivized to accept all exchanges proposed.

The protocol achieves stability with no further beneficial exchanges after termination.

Abstract

We study a setting where a set of agents engage in pairwise exchanges of freely replicable goods (e.g., digital goods such as data), where two agents grant each other a copy of a good they possess in exchange for a good they lack. Such exchanges introduce a fundamental tension: while agents benefit from acquiring additional goods, they incur negative externalities when others do the same. This dynamic typically arises in real-world scenarios where competing entities may benefit from selective collaboration. For example, in a data sharing consortium, pharmaceutical companies might share (copies of) drug discovery data, when the value of accessing a competitor's data outweighs the risk of revealing their own. In our model, an altruistic central planner wishes to design an exchange protocol (without money), to structure such exchanges between agents. The protocol operates over multiple rounds, proposing sets of pairwise exchanges in each round, which agents may accept or reject. We formulate three key desiderata for such a protocol: (i) individual rationality: agents should not be worse off by participating in the protocol; (ii) incentive-compatibility: agents should be incentivized to share as much as possible by accepting all exchange proposals by the planner; (iii) stability: there should be no further mutually beneficial exchanges upon termination. We design an exchange protocol for the planner that satisfies all three desiderata. While the above desiderata are inspired by classical models for exchange, free-replicability and negative externalities necessitate novel and nontrivial reformalizations of these goals. We also argue that achieving Pareto-efficient agent utilities -- often a central goal in exchange models without externalities -- may be ill-suited in this setting.