Stochastic mechanisms in settings without monetary transfers: The regular case

Eugen Kovac and Tymofiy Mylovanov ()

Journal of Economic Theory, 2009, vol. 144, issue 4, 1373-1395

Abstract: We analyze relative performance of stochastic and deterministic mechanisms in an environment that has been extensively studied in the literature on communication (e.g., [Vincent P. Crawford, Joel Sobel, Strategic information transmission, Econometrica 50 (6) (1982) 1431-1451]) and optimal delegation (e.g., [Bengt Holmström, On the theory of delegation, in: M. Boyer, R.E. Kihlstrom (Eds.), Bayesian Models in Economic Theory, North-Holland, 1984, pp. 115-141]): a principal-agent model with hidden information, no monetary transfers, and single-peaked preferences. We demonstrate that under the common assumption of quadratic payoffs and a certain regularity condition on the distribution of private information and the agent's bias, the optimal mechanism is deterministic. We also provide an explicit characterization of this mechanism.

Keywords: Optimal; delegation; Cheap; talk; Principal-agent; relationship; No; monetary; transfers; Stochastic; mechanisms (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:4:p:1373-1395

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