Centralization or Decentralization in Multi-Agency Contracting Games?

Abstract:     
I explore whether two major contracting procedures, decentralized menu design and centralized mechanism design, are strategically equivalent in multi-agency contracting games. Unlike single-agency, multi-agency suggests strategic behaviors of the agents and the interrelated impacts of different agents’asymmetric information on the principal’s objective. I …find that centralization can take advantage of joint-base mechanisms, as a useful communication device related to relative information evaluation, to better deal with the interrelated information asymmetry in general multi-agency games with ex post implementation. Technically, my main contribution is to show that ex post menu design is merely strategically equivalent to individual-based ex post mechanism design rather than joint-based ex post mechanism design, which actually makes the principal better off than the former two. My …findings support the rationale of centralized economics design and associated information communication from another perspective.

Number of Pages in PDF File: 71

Keywords: multi-agency, ex post equilibrium, mechanism design, menu design, revelation principle, delegation principle, relative information evaluation

JEL Classification: C79, D82, D86

working papers series