Production externalities and two-way distortion in principal-multi-agent problems

DOI10.1006/JETH.1999.2625MaRDI QIDQ1577932zbMATH OpenOpenAlexFDO

Authors Ben Lockwood

Publication date 27 August 2000

Published in Journal of Economic Theory (Search for Journal in Brave)

Full work available at URL https://ageconsearch.umn.edu/record/269249/files/twoway1.pdf

zbMATH Keywords

externalitiesprincipal-agent problems

Mathematics Subject Classification ID

Review text

The paper presents an analysis of principal-multi-agent model with hidden information where there are positive production externalities between agents. The principal has to design the contract subject to the constraints that it must be either a dominant strategy or Bayes-Nash equilibrium strategy for each agent to tell the truth. The focus of this paper is on the nature of the distortion in output and effort induced by the optimal contract. It is shown that the presence of positive production externalities between agents leads, under quite general conditions, to two-way distortion, with the output of any agent being oversupplied when his marginal cost of effort is low and undersupplied when his marginal cost of effort is high. One result of the paper indicates that, when the number of agents is large, the principal can restrict the attention to dominant-strategy incentive-compatible contracts. Finally, the related literature, especially the work on countervailing incentives in principal-multi-agent problems, is discussed.

Recommendations

• Contracting with Externalities
• Optimal incentive contracts with multiple agents
• Incentive contracts in two-sided moral hazards with multiple agents
• Optimal Incentive Schemes with Many Agents
• Analysis of various optimal contracts in the problem of stimulation of agents by a principal in a model with two agents

Cites work

• A simpler mechanism that stops agents from cheating
• Coordinating Coordination Failures in Keynesian Models
• Countervailing incentives in agency problems
• scientific article; zbMATH DE number 3547015 (Why is no real title available?)
• Incentives to Help in Multi-Agent Situations
• On a theorem of Schmeidler
• On countervailing incentives
• Optimal incentive contracts with multiple agents
• Optimal Incentive Schemes with Many Agents
• Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist when Demands are Interdependent
• Regulating a Monopolist with Unknown Costs
• Stopping agents from ``cheating

Cited in

(1)

• Stopping agents from ``cheating

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