Centralization or Decentralization in Multi-Agency Contracting Games?
Nanjing University - School of Economics
January 1, 2014
Center for Applied Economics and Policy Research (CAEPR) Working Paper No. 2012-008
We explore the connection and comparison between the decentralized menu contracting procedure and the centralized mechanism contracting procedure in multi-agency games. We make three contributions: (1) we formulate relevant multi-agency problems with ε-ex post implementation under generalized model settings; (2) we identify that ε-ex post menu design is merely strategically equivalent to individual-based ε-ex post mechanism design rather than joint-based ε-ex post mechanism design. Thus, individual-based mechanisms serve as a bridge for the comparison between decentralization and centralization; (3) we show that joint-based ε-ex post mechanism design always weakly dominates individual-based ε-ex post mechanism design and ε-ex post menu design. We also provide economically interesting conditions for when the former strictly dominates the latter two and when they are all equivalent. Our results still hold for any degenerated form of "full interdependence", including ε-dominant strategy implementation.
Number of Pages in PDF File: 40
Keywords: multi-agency, ex post equilibrium, mechanism design, menu design, revelation principle, delegation principle, relative information evaluation
JEL Classification: C79, D82, D86
Date posted: December 7, 2012 ; Last revised: January 22, 2014
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