TY - JOUR
T1 - Principal-Agent VCG Contracts
AU - Lavi, R
AU - Shamash, Elisheva
N1 - Funding Information:
A one-page abstract of a preliminary version of this paper has appeared in the proceedings of the 2019 ACM Conference on Economics and Computation ( Lavi and Shamash, 2019 ). This research was supported by the ISF-NSFC joint research program (grant No. 2560/17 ).
PY - 2022/4/30
Y1 - 2022/4/30
N2 - We study a complete information game with multiple principals and multiple common agents. Each agent takes an action that can affect the payoffs of all principals. Prat and Rustichini (2003) who introduce this model assume classic contracts: each principal offers monetary transfers to each agent conditional on the action taken by the agent. We define VCG contracts in which the monetary transfers to each agent additionally depend on all principals' offers, and study its effect on the existence of efficient pure subgame perfect equilibrium outcomes. Using a necessary and sufficient condition for the existence of a pure subgame perfect equilibrium (pure SPE) with VCG contracts, which we develop, we show that the class of instances that admit an efficient pure SPE with VCG contracts strictly contains the class of instances that admit an efficient pure SPE with classic contracts. In addition, the difference between the former class and the class of instances that admit a ‘weakly truthful’ SPE with classic contracts has positive measure. Although VCG contracts broaden the existence of pure subgame perfect equilibria, we show that the worst case welfare loss in a pure SPE outcome, over all games with any fixed M≥2 number of principals, is the same for both VCG contracts and classic contracts.
AB - We study a complete information game with multiple principals and multiple common agents. Each agent takes an action that can affect the payoffs of all principals. Prat and Rustichini (2003) who introduce this model assume classic contracts: each principal offers monetary transfers to each agent conditional on the action taken by the agent. We define VCG contracts in which the monetary transfers to each agent additionally depend on all principals' offers, and study its effect on the existence of efficient pure subgame perfect equilibrium outcomes. Using a necessary and sufficient condition for the existence of a pure subgame perfect equilibrium (pure SPE) with VCG contracts, which we develop, we show that the class of instances that admit an efficient pure SPE with VCG contracts strictly contains the class of instances that admit an efficient pure SPE with classic contracts. In addition, the difference between the former class and the class of instances that admit a ‘weakly truthful’ SPE with classic contracts has positive measure. Although VCG contracts broaden the existence of pure subgame perfect equilibria, we show that the worst case welfare loss in a pure SPE outcome, over all games with any fixed M≥2 number of principals, is the same for both VCG contracts and classic contracts.
KW - Contractible contracts
KW - Games played through agents
KW - Principal-agent
KW - VCG
UR - http://www.scopus.com/inward/record.url?scp=85127218598&partnerID=8YFLogxK
U2 - 10.1016/j.jet.2022.105443 Get
DO - 10.1016/j.jet.2022.105443 Get
M3 - Article
VL - 201
JO - Journal of Economic Theory
JF - Journal of Economic Theory
SN - 0022-0531
M1 - 105443
ER -