# Mechanism Design for Decentralized Risk Detection: Strict Propriety, Network Coalitions, and the Backfiring Mandat

arXiv: https://arxiv.org/abs/2604.21789 · HTML: https://mlsanity.com/paper/2604.21789/

## Key facts

- No citing papers in the map yet (data through 14 Oct 2026).
- Builds on 3 of its 53 references that are in the map.
- First posted on arXiv 23 Apr 2026.

## Builds on (most cited first, 3 of 3)

- [Anti-Money Laundering in Bitcoin: Experimenting with Graph Convolutional Networks for Financial Forensics](https://mlsanity.com/paper/1908.02591/) (2019)
- [Scalable Graph Learning for Anti-Money Laundering: A First Look](https://mlsanity.com/paper/1812.00076/) (2018)
- [Cluster Aware Graph Anomaly Detection](https://mlsanity.com/paper/2409.09770/) (2024)

## Abstract (arXiv)

Competing firms that share a population of risky customers face a decentralized risk detection problem in which each firm holds fragmentary information whose aggregation would generate social value, but private incentives impede truthful sharing. We develop a dynamic mechanism design framework for this setting and identify three strategic frictions that distinguish it from classical mechanism design with decentralized information: compliance moral hazard, adversarial adaptation, and information destruction through intervention. A temporal value assignment (TVA) mechanism credits firms using a strictly proper scoring rule applied to discounted verified outcomes; under stated assumptions, TVA implements truthful posterior reporting as a Bayes--Nash equilibrium (uniquely optimal at each edge in large federations, with O(1/m) shading in finite systems). A network Shapley characterization shows that under edge-additive coalition value, each firm's marginal contribution is proportional to its weighted cross-firm interaction degree, yielding a sharp prescription for coalition design that prioritizes inter-firm volume over firm size. Embedding TVA in a model of competition among firms, we establish a welfare ordering across four regulatory regimes (autarky, voluntary federation, mandated full sharing, TVA) and identify conditions under which information-sharing mandates without compatible incentive design reduce welfare below autarky: a ``backfiring mandate.'' We illustrate the framework on a 1.4M-transaction synthetic anti-money-laundering benchmark; the same machinery extends to platform fraud, cybersecurity threat intelligence, and supply chain risk detection.