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Optimal delegation with multi-dimensional decisions

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  • Koessler, Frédéric
  • Martimort, David

Abstract

This paper investigates optimal mechanisms in a principal–agent framework with a two-dimensional decision space, quadratic payoffs and no monetary transfers. If the conflicts of interest between the principal and the agent are different on each dimension, then delegation is always strictly valuable. The principal can better extract information from the agent by using the spread between the two decisions as a costly screening device. Delegation sets no longer trade off pooling intervals and intervals of full discretion but instead take more complex shapes. We use advanced results from the calculus of variations to ensure existence of a solution and derive sufficient and necessary conditions for optimality. The optimal mechanism is continuous and deterministic. The agentʼs informational rent, the average decision and its spread are strictly monotonic in the agentʼs type. The comparison of the optimal mechanism with standard one-dimensional mechanisms shows how cooperation between different principals controlling various dimensions of the agentʼs activities facilitates information revelation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 147 (2012)
Issue (Month): 5 ()
Pages: 1850-1881

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Handle: RePEc:eee:jetheo:v:147:y:2012:i:5:p:1850-1881

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: Mechanism; Delegation; Mechanism design; Multi-dimensional decision;

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References

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Citations

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Cited by:
  1. Zapechelnyuk, Andriy, 2013. "Eliciting information from a committee," Journal of Economic Theory, Elsevier, vol. 148(5), pages 2049-2067.
  2. Vincent Anesi & Daniel J. Seidmann, 2011. "Optimal Delegation with a Finite Number of States," Discussion Papers 2011-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  3. Tymofiy Mylovanov & Andriy Zapechelnyuk, 2010. "Decision Rules for Experts with Opposing Interests," Working Papers 674, Queen Mary, University of London, School of Economics and Finance.
  4. Mylovanov, Tymofiy & Zapechelnyuk, Andriy, 2013. "Decision rules revealing commonly known events," Economics Letters, Elsevier, vol. 119(1), pages 8-10.
  5. Alonso, Ricardo & Brocas, Isabelle & Carrillo, Juan D, 2011. "Resource Allocation in the Brain," CEPR Discussion Papers 8408, C.E.P.R. Discussion Papers.

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