Contracting with Heterogeneous Externalities
We model situations in which a principal offers contracts to a group of agents to participate in a project. Agents' benefits from participation depend on the identity of other participating agents. We assume heterogeneous externalities and characterize the optimal contracting scheme. We show that the optimal contracts' payoff relies on a ranking, which arise from a tournament among the agents. The optimal ranking cannot be achieved by a simple measure of popularity. Using the structure of the optimal contracts, we derive results on the principal's revenue extraction and the role of the level of externalities' asymmetry. (JEL D62, D82, D86)
Volume (Year): 4 (2012)
Issue (Month): 2 (May)
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- Mutuswami, Suresh & Winter, Eyal, 2002.
"Subscription Mechanisms for Network Formation,"
Journal of Economic Theory,
Elsevier, vol. 106(2), pages 242-264, October.
- MUTUSWAMI, Suresh & WINTER, Eyal, 2000. "Subscription mechanisms for network formation," CORE Discussion Papers 2000020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Suresh Mutuswami & Eyal Winter, 2001. "Subscription Mechanisms for Network Formation," Discussion Paper Series dp264, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.