Asymptotic efficiency of the proportional compensation scheme for a large number of producers

DOI10.2298/YJOR170918028RMaRDI QIDQ4987799zbMATH OpenFDO

Authors D. B. Rokhlin, Anatoliĭ B. Usov

Publication date 4 May 2021

Published in Yugoslav Journal of Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1701.06038

zbMATH Keywords

asymptotic efficiencyprice of anarchyproportional compensation schemetotal productiontullock contest

Mathematics Subject Classification ID

Resource and cost allocation (including fair division, apportionment, etc.) (91B32) Production theory, theory of the firm (91B38)

Abstract: We consider a manager, who allocates some fixed total payment amount between $N$ rational agents in order to maximize the aggregate production. The profit of $i$-th agent is the difference between the compensation (reward) obtained from the manager and the production cost. We compare (i) the emph{normative} compensation scheme, where the manager enforces the agents to follow an optimal cooperative strategy; (ii) the emph{linear piece rates} compensation scheme, where the manager announces an optimal reward per unit good; (iii) the emph{proportional} compensation scheme, where agent's reward is proportional to his contribution to the total output. Denoting the correspondent total production levels by $s^{\ast }$, $hats$ and $overlines$ respectively, where the last one is related to the unique Nash equilibrium, we examine the limits of the prices of anarchy $mathscr{A}_N=s^{\ast }/overlines$, $mathscr{A_N}^{\prime }=hats/overlines$ as $Noinfty$. These limits are calculated for the cases of identical convex costs with power asymptotics at the origin, and for power costs, corresponding to the Coob-Douglas and generalized CES production functions with decreasing returns to scale. Our results show that asymptotically no performance is lost in terms of $mathscrA{\text{'}}_N$, and in terms of $mathscr{A}_N$ the loss does not exceed $31\mathrm{\%}$.

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