Computing an Optimal Contract in Simple Technologies
We study an economic setting in which a principal motivates a team of strategic agents to exert costly effort toward the success of a joint project. The action taken by each agent is hidden and affects the (binary) outcome of the agent's individual task stochastically. A Boolean function, called technology, maps the individual tasks' outcomes into the outcome of the whole project. The principal induces a Nash equilibrium on the agents' actions through payments that are conditioned on the project's outcome (rather than the agents' actual actions) and the main challenge is that of determining the Nash equilibrium that maximizes the principal's net utility, referred to as the optimal contract. Babaioff, Feldman and Nisan  suggest and study a basic combinatorial agency model for this setting. Here, we concentrate mainly on two extreme cases: the AND and OR technologies. Our analysis of the OR technology resolves an open question and disproves a conjecture raised in . In particular, we show that while the AND case admits a polynomial-time algorithm, computing the optimal contract in the OR case is NP-hard. On the positive side, we devise an FPTAS for the OR case, which also sheds some light on optimal contract approximation of general technologies.
|Date of creation:||May 2007|
|Contact details of provider:|| Postal: Feldman Building - Givat Ram - 91904 Jerusalem|
Web page: http://www.ratio.huji.ac.il/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eyal Winter, 2004.
"Incentives and Discrimination,"
American Economic Review,
American Economic Association, vol. 94(3), pages 764-773, June.
- Babaioff, Moshe & Feldman, Michal & Nisan, Noam & Winter, Eyal, 2012. "Combinatorial agency," Journal of Economic Theory, Elsevier, vol. 147(3), pages 999-1034.
- Nisan, Noam & Ronen, Amir, 2001. "Algorithmic Mechanism Design," Games and Economic Behavior, Elsevier, vol. 35(1-2), pages 166-196, April.
- Patrick Legros & Steven A. Matthews, 1993.
"Efficient and Nearly-Efficient Partnerships,"
Review of Economic Studies,
Oxford University Press, vol. 60(3), pages 599-611.
- Patrick Legros & Steven A. Matthews, 1992. "Efficient and Nearly Efficient Partnerships," Discussion Papers 991R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Patrick Legros & Steven Matthews, 1993. "Efficient and nearly efficient partnerships," ULB Institutional Repository 2013/7040, ULB -- Universite Libre de Bruxelles.
- Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 433-446.
- Roland Strausz, "undated". "Moral Hazard in Sequential Teams," Papers 001, Departmental Working Papers.
When requesting a correction, please mention this item's handle: RePEc:huj:dispap:dp452. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tomer Siedner)
If references are entirely missing, you can add them using this form.