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Public Contracting in Delegated Agency Games

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  • Martimort, David
  • Stole, Lars

Abstract

We study games of public delegated common agency under asymmetric information. Us- ing tools from non-smooth analysis and optimal control, we derive best responses and characterize equilibria (both continuous and discontinuous) using self-generating opti- mization programs of which any equilibrium allocation must be a solution. Special atten- tion is given to common agency games in which each principal’s payoff is a linear function of the agent’s action. In such games the self-generating optimization program reduces to the maximization of the principals’ “aggregate” virtual surplus in which the agent’s marginal valuation is replaced by a confluence of “virtual” valuations that reflect com- mon agency problems. One noteworthy subset of equilibrium allocations are “virtually truthful” which are the incomplete-information generalization of Bernheim and Whin- ston’s (1986) “truthful” equilibria. Virtually-truthful equilibria are simple to calculate and illustrate two distinct sources of equilibrium distortion: inefficient contracting by a given coalition of active principals and inefficient participation (insufficient activity) by principals. Our results are illustrated by means of two games: a public goods game in which each player simultaneously offers a menu contract to a common provider of the public good in order to induce greater supply, and a lobbying game between conflicting interest groups in which each group offers a menu of contributions to a common political decision-maker in an attempt to influence policymaking.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32874.

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Date of creation: 17 Aug 2011
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Handle: RePEc:pra:mprapa:32874

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Related research

Keywords: Common agency; asymmetric information; menu auctions; delegated contracting games; public goods; lobbying; non-smooth analysis; non-smooth control;

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References

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  1. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  2. Calzolari, Giacomo & Denicolo, Vincenzo, 2009. "Competition with exclusive contracts and market-share discounts," CEPR Discussion Papers 7613, C.E.P.R. Discussion Papers.
  3. Biais, Bruno & Martimort, David & Rochet, Jean-Charles, 1998. "Competing Mechanisms in a Commun Value Environment," IDEI Working Papers 75, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Ivaldi, M. & Martimort, D., 1992. "Competition Under Nonlinear Pricing," Papers 93.288, Toulouse - GREMAQ.
  5. Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers 5289, C.E.P.R. Discussion Papers.
  6. Martimort, David, 1996. "The multiprincipal nature of government," European Economic Review, Elsevier, vol. 40(3-5), pages 673-685, April.
  7. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  8. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 277-311.
  9. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series 575, CESifo Group Munich.
  10. David MARTIMORT, 1992. "Multi-principaux avec anti-sélection," Annales d'Economie et de Statistique, ENSAE, issue 28, pages 1-37.
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  14. Martimort, David & Semenov, Aggey, 2008. "Ideological uncertainty and lobbying competition," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 456-481, April.
  15. B. Douglas Bernheim & Michael D. Whinston, . "Exclusive Dealing," Working Papers 96008, Stanford University, Department of Economics.
  16. Martimort, David & Stole, Lars, 1999. "Contractual Externalities and Common Agency Equilibria," IDEI Working Papers 110, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003.
  17. David Martimort & Lars Stole, 2009. "Market participation in delegated and intrinsic common-agency games," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 78-102.
  18. Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
  19. Laussel, Didier & Le Breton, Michel, 1998. "Efficient Private Production of Public Goods under Common Agency," Games and Economic Behavior, Elsevier, vol. 25(2), pages 194-218, November.
  20. Martimort, David & Stole, Lars, 2011. "Aggregate Representations of Aggregate Games," MPRA Paper 32871, University Library of Munich, Germany.
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  22. Hoernig, Steffen & Valletti, Tommaso, 2010. "When two-part tariffs are not enough: Mixing with nonlinear pricing," CEPR Discussion Papers 7720, C.E.P.R. Discussion Papers.
  23. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
  24. Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-62, Winter.
  25. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-57, May.
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  28. Martimort, David & Semenov, Aggey, 2006. "Continuity in mechanism design without transfers," Economics Letters, Elsevier, vol. 93(2), pages 182-189, November.
  29. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
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Citations

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Cited by:
  1. Martimort, David & Sand-Zantman, Wilfried, 2011. "A Mechanism Design Approach to Climate Agreements," IDEI Working Papers 682, Institut d'Économie Industrielle (IDEI), Toulouse, revised 30 Apr 2013.
  2. Martimort, David & Stole, Lars, 2011. "Aggregate Representations of Aggregate Games," MPRA Paper 32871, University Library of Munich, Germany.
  3. Martimort, David & Stole, Lars, 2012. "Representing equilibrium aggregates in aggregate games with applications to common agency," Games and Economic Behavior, Elsevier, vol. 76(2), pages 753-772.
  4. Hoernig Steffen & Valletti Tommaso M., 2011. "When Two-Part Tariffs are Not Enough: Mixing with Nonlinear Pricing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-20, October.
  5. Martimort, David & Stole, Lars, 2011. "The Collective Wisdom of Beauty Contests," MPRA Paper 32872, University Library of Munich, Germany.

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