We study common agency problems in which principals (groups) make costly commit- ments to incentives that are conditioned on imperfect signals of the agent’s action. Our framework allows for incentives to be either rewards or punishments and an equilibrium al- ways exists. For our canonical example with two principals we obtain a unique equilibrium, which typically involves randomization by both principals. Greater similarity between prin- cipals leads to more aggressive competition. The principals weakly prefer punishment to rewards, sometimes strictly. With rewards an agent voluntarily joins both groups; with pun- ishment it depends on whether severe punishments are feasible and cheap for the principals. We study whether introducing an attractive compromise reduces competition between prin- cipals. Our framework of imperfect monitoring offers a natural perturbation of the standard common agency model, which results in sharper equilibrium predictions. The limit equilib- rium prediction provides support to both truthful equilibria and the competing notion of natural equilibria, which unlike the former may be inefficient.

Rohan, D., David, K., Salvatore, M. (2018). Damned If You Do and Damned If You Don’t: Two Masters. JOURNAL OF ECONOMIC THEORY, 177(177), 101-125 [10.1016/j.jet.2018.05.016].

Damned If You Do and Damned If You Don’t: Two Masters

salvatore modica
2018-01-01

Abstract

We study common agency problems in which principals (groups) make costly commit- ments to incentives that are conditioned on imperfect signals of the agent’s action. Our framework allows for incentives to be either rewards or punishments and an equilibrium al- ways exists. For our canonical example with two principals we obtain a unique equilibrium, which typically involves randomization by both principals. Greater similarity between prin- cipals leads to more aggressive competition. The principals weakly prefer punishment to rewards, sometimes strictly. With rewards an agent voluntarily joins both groups; with pun- ishment it depends on whether severe punishments are feasible and cheap for the principals. We study whether introducing an attractive compromise reduces competition between prin- cipals. Our framework of imperfect monitoring offers a natural perturbation of the standard common agency model, which results in sharper equilibrium predictions. The limit equilib- rium prediction provides support to both truthful equilibria and the competing notion of natural equilibria, which unlike the former may be inefficient.
2018
Settore SECS-P/01 - Economia Politica
http://www1.unipa.it/modica/TwoMastersPublished.pdf
Rohan, D., David, K., Salvatore, M. (2018). Damned If You Do and Damned If You Don’t: Two Masters. JOURNAL OF ECONOMIC THEORY, 177(177), 101-125 [10.1016/j.jet.2018.05.016].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10447/265063
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