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Contracting a crowd of heterogeneous agents

Author

Listed:
  • Guillermo Alonso Alvarez
  • Erhan Bayraktar
  • Ibrahim Ekren

Abstract

We study optimal contract design for large populations of heterogeneous agents whose actions generate network spillovers represented by an interaction function. In a linear-quadratic framework, we solve the finite-agent problem and its continuum limit, obtaining explicit optimal contracts and equilibrium efforts. We show that the continuum contract can be evaluated on a large finite sample of agents to obtain admissible contracts that achieve the finite-agent principal's value up to an error of order 1/N. This provides a scalable approximation for settings with many interacting agents. We also prove stability with respect to perturbations of the interaction function and provide comparative statics and numerical examples showing how network position affects effort, incentives, and the principal's value. The results identify how optimal incentives should be targeted toward agents whose actions generate larger spillovers.

Suggested Citation

  • Guillermo Alonso Alvarez & Erhan Bayraktar & Ibrahim Ekren, 2025. "Contracting a crowd of heterogeneous agents," Papers 2507.09415, arXiv.org, revised May 2026.
    • Handle: RePEc:arx:papers:2507.09415
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    References listed on IDEAS

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