 Relative performance evaluation in spillover networksYang Sun and Wei Zhao Games and Economic Behavior, 2024, vol. 145, issue C, 285-311 Abstract: In a multi-agent contracting problem, agents are linked in performance through two channels, effort spillover, governed by spillover network, and risk correlation, governed by risk structure. Assigning compensation weights on peers' performances can not only filter out common risks but also alter agent's incentives. We study how the network and risk structure jointly determine the optimal linear contract. First, the relative compensation sensitivity is determined by ratio of the dot product, between spillover vector and pure hedge portfolio, to unhedgeable risk. We then propose an index named informativeness along the spillover direction and argue that this index measures how precisely the principal can infer the agent's effort. By showing that both the implemented effort and induced welfare are increasing in the informativeness index, we argue that this index captures how central each agent is in this economy. Finally, results regarding relative sensitivities still hold under optimal contract with bounded compensation. Keywords: Moral hazard in teams; Spillover network; Incentive-hedge trade-off; Centrality; Relative performance evaluation; Linear aggregation of information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:145:y:2024:i:c:p:285-311 DOI: 10.1016/j.geb.2024.03.009 Access Statistics for this article Games and Economic Behavior is currently edited by E. Kalai More articles in Games and Economic Behavior from Elsevier |
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