Non-Cash Auction for Spectrum Trading in Cognitive Radio Networks: A Contract Theoretical Model with Joint Adverse Selection and Moral Hazard

In cognitive radio networks (CRNs), spectrum trading is an efficient way for secondary users (SUs) to achieve dynamic spectrum access and to bring economic benefits for the primary users (PUs). Existing methods requires full payment from SU, which blocked many potential “buyers”, and thus limited the PU’s expected income. To better improve PUs’ revenue from spectrum trading in a CRN, we introduce a financing contract, which is similar to a sealed non-cash auction that allows SU to do a financing. Unlike previous mechanism designs in CRN, the financing contract allows the SU to only pay part of the total amount when the contract is signed, known as the down payment. Then, after the spectrum is released and utilized, the SU pays the rest of payment, known as the installment payment, from the revenue generated by utilizing the spectrum. The way the financing contract carries out and the sealed non-cash auction works similarly. Thus, contract theory is employed here as the mathematical framework to solve the non-cash auction problem and form mutually beneficial relationships between PUs and SUs. As the PU may not have the full acknowledgement of the SU’s financial status, nor the SU’s capability in making revenue, the problems of adverse selection and moral hazard arise in the two scenarios, respectively. Therefore, a joint adverse selection and moral hazard model is considered here. In particular, we present three situations when either or both adverse selection and moral hazard are present during the trading. Furthermore, both discrete and continuous models are provided in this paper. Through extensive simulations, we show that the adverse selection and moral hazard cases serve as the upper and lower bounds of the general case where both problems are present. Index Terms Spectrum trading, non-cash auction, financing contract, adverse selection, moral hazard, contract theory. Y. Zhang, M. Pan, and Z. Han are with the Department of Electrical and Computer Engineering, University of Houston, Houston, TX 77004 USA (e-mail: [email protected]; [email protected]; [email protected]). L. Song is with the School of Electrical Engineering and Computer Science, Peking University, Beijing, China, 100871 (e-mail: [email protected]). Z. Dawy is with the Electrical and Computer Engineering Department, American University of Beirut, Riad El-Solh P.O. BOX 11-0236, Beirut 1107 2020, Lebanon (e-mail: [email protected]).