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Combinatorial agency

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Combinatorial agency. / Babaioff, M.; Feldman, M.; Nisan, N. et al.
In: Journal of Economic Theory, Vol. 147, No. 3, 05.2012, p. 999-1034.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

Babaioff, M, Feldman, M, Nisan, N & Winter, E 2012, 'Combinatorial agency', Journal of Economic Theory, vol. 147, no. 3, pp. 999-1034. https://doi.org/10.1016/j.jet.2012.01.010

APA

Babaioff, M., Feldman, M., Nisan, N., & Winter, E. (2012). Combinatorial agency. Journal of Economic Theory, 147(3), 999-1034. https://doi.org/10.1016/j.jet.2012.01.010

Vancouver

Babaioff M, Feldman M, Nisan N, Winter E. Combinatorial agency. Journal of Economic Theory. 2012 May;147(3):999-1034. doi: 10.1016/j.jet.2012.01.010

Author

Babaioff, M. ; Feldman, M. ; Nisan, N. et al. / Combinatorial agency. In: Journal of Economic Theory. 2012 ; Vol. 147, No. 3. pp. 999-1034.

Bibtex

@article{d3e63f111fdb46899ac6f8a1a46777ca,
title = "Combinatorial agency",
abstract = "We study a combinatorial variant of the classical principal-agent model. In our setting a principal wishes to incentivize a team of strategic agents to exert costly effort on his behalf. Agents' actions are hidden and the principal observes only the outcome of the team, which depends stochastically on the complex combinations of the efforts by the agents. The principal seeks the mechanism that maximizes the principal's net revenue given an equilibrium behavior of the agents. We investigate the structure of the optimal mechanism for various production technologies as the principal's value from the project varies. In doing so we quantify the gap between the first-best and second-best solutions. Our results highlight the qualitative and quantitative differences between production technologies that exhibit complementarities and substitutabilities between the agents' actions. In comparing the first best with the second best we highlight the role of effort monitoring by the principal. As we shall see, the benefit from monitoring crucially depends on the underlying technology, with the two polar cases being perfect substitution and perfect complementarity. {\textcopyright} 2012 Elsevier Inc.",
keywords = "Agency theory, Contracts, Hidden-action, Incentives, Moral hazard",
author = "M. Babaioff and M. Feldman and N. Nisan and E. Winter",
year = "2012",
month = may,
doi = "10.1016/j.jet.2012.01.010",
language = "English",
volume = "147",
pages = "999--1034",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "ELSEVIER ACADEMIC PRESS INC",
number = "3",

}

RIS

TY - JOUR

T1 - Combinatorial agency

AU - Babaioff, M.

AU - Feldman, M.

AU - Nisan, N.

AU - Winter, E.

PY - 2012/5

Y1 - 2012/5

N2 - We study a combinatorial variant of the classical principal-agent model. In our setting a principal wishes to incentivize a team of strategic agents to exert costly effort on his behalf. Agents' actions are hidden and the principal observes only the outcome of the team, which depends stochastically on the complex combinations of the efforts by the agents. The principal seeks the mechanism that maximizes the principal's net revenue given an equilibrium behavior of the agents. We investigate the structure of the optimal mechanism for various production technologies as the principal's value from the project varies. In doing so we quantify the gap between the first-best and second-best solutions. Our results highlight the qualitative and quantitative differences between production technologies that exhibit complementarities and substitutabilities between the agents' actions. In comparing the first best with the second best we highlight the role of effort monitoring by the principal. As we shall see, the benefit from monitoring crucially depends on the underlying technology, with the two polar cases being perfect substitution and perfect complementarity. © 2012 Elsevier Inc.

AB - We study a combinatorial variant of the classical principal-agent model. In our setting a principal wishes to incentivize a team of strategic agents to exert costly effort on his behalf. Agents' actions are hidden and the principal observes only the outcome of the team, which depends stochastically on the complex combinations of the efforts by the agents. The principal seeks the mechanism that maximizes the principal's net revenue given an equilibrium behavior of the agents. We investigate the structure of the optimal mechanism for various production technologies as the principal's value from the project varies. In doing so we quantify the gap between the first-best and second-best solutions. Our results highlight the qualitative and quantitative differences between production technologies that exhibit complementarities and substitutabilities between the agents' actions. In comparing the first best with the second best we highlight the role of effort monitoring by the principal. As we shall see, the benefit from monitoring crucially depends on the underlying technology, with the two polar cases being perfect substitution and perfect complementarity. © 2012 Elsevier Inc.

KW - Agency theory

KW - Contracts

KW - Hidden-action

KW - Incentives

KW - Moral hazard

U2 - 10.1016/j.jet.2012.01.010

DO - 10.1016/j.jet.2012.01.010

M3 - Journal article

VL - 147

SP - 999

EP - 1034

JO - Journal of Economic Theory

JF - Journal of Economic Theory

SN - 0022-0531

IS - 3

ER -