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

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.
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: http://hdl.handle.net/10447/265063
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