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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.

Suggested Citation

  • Martimort, David & Stole, Lars, 2011. "Public Contracting in Delegated Agency Games," MPRA Paper 32874, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32874
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    File URL: https://mpra.ub.uni-muenchen.de/32874/1/MPRA_paper_32874.pdf
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    References listed on IDEAS

    as
    1. Marc Ivaldi & David Martimort, 1994. "Competition under Nonlinear Pricing," Annals of Economics and Statistics, GENES, issue 34, pages 13-69.
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    7. Martimort, David & Semenov, Aggey, 2008. "Ideological uncertainty and lobbying competition," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 456-481, April.
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    Cited by:

    1. Martimort, David & Stole, Lars, 2011. "Aggregate Representations of Aggregate Games," MPRA Paper 32871, University Library of Munich, Germany.
    2. 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.
    3. Martimort, David & Stole, Lars, 2011. "The Collective Wisdom of Beauty Contests," MPRA Paper 32872, University Library of Munich, Germany.
    4. 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.

    More about this item

    Keywords

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

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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