Dynamic Multiagent Incentive Contracts: Existence, Uniqueness, and Implementation

Qi Luo and Romesh Saigal
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Qi Luo: Department of Industrial Engineering, Clemson University, Clemson, SC 29634, USA
Romesh Saigal: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, MI 48109, USA

Mathematics, 2020, vol. 9, issue 1, 1-17

Abstract: Multiagent incentive contracts are advanced techniques for solving decentralized decision-making problems with asymmetric information. The principal designs contracts aiming to incentivize non-cooperating agents to act in his or her interest. Due to the asymmetric information, the principal must balance the efficiency loss and the security for keeping the agents. We prove both the existence conditions for optimality and the uniqueness conditions for computational tractability. The coupled principal-agent problems are converted to solving a Hamilton–Jacobi–Bellman equation with equilibrium constraints. Extending the incentive contract to a multiagent setting with history-dependent terminal conditions opens the door to new applications in corporate finance, institutional design, and operations research.

Keywords: Nash equilibrium; moral hazard; differential game; dynamic programming (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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