Contracting a crowd of heterogeneous agents

Guillermo Alonso Alvarez, Erhan Bayraktar and Ibrahim Ekren

Papers from arXiv.org

Abstract: We study optimal contract design for large populations of heterogeneous agents whose actions generate network spillovers represented by an interaction function. In a linear-quadratic framework, we solve the finite-agent problem and its continuum limit, obtaining explicit optimal contracts and equilibrium efforts. We show that the continuum contract can be evaluated on a large finite sample of agents to obtain admissible contracts that achieve the finite-agent principal's value up to an error of order 1/N. This provides a scalable approximation for settings with many interacting agents. We also prove stability with respect to perturbations of the interaction function and provide comparative statics and numerical examples showing how network position affects effort, incentives, and the principal's value. The results identify how optimal incentives should be targeted toward agents whose actions generate larger spillovers.

Date: 2025-07, Revised 2026-05
New Economics Papers: this item is included in nep-cta and nep-mic
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