Computing an Optimal Contract in Simple Technologies

Yuval Emek () and Michal Feldman ()

Discussion Paper Series from The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem

Abstract: 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 [1] 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 [1]. 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.

Pages: 23 pages
Date: 2007-05
New Economics Papers: this item is included in nep-bec, nep-cmp, nep-ict and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://ratio.huji.ac.il/sites/default/files/publications/dp452.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ratio.huji.ac.il/sites/default/files/publications/dp452.pdf [302 Moved Temporarily]--> https://ratio.huji.ac.il/sites/default/files/publications/dp452.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:huj:dispap:dp452

Access Statistics for this paper

More papers in Discussion Paper Series from The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem Contact information at EDIRC.
Bibliographic data for series maintained by Michael Simkin ().