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Centralization or Decentralization in Multi-Agency Contracting Games?


Yu Chen


Nanjing University - School of Economics

January 1, 2014

Center for Applied Economics and Policy Research (CAEPR) Working Paper No. 2012-008

Abstract:     
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

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Date posted: December 7, 2012 ; Last revised: January 22, 2014

Suggested Citation

Chen, Yu, Centralization or Decentralization in Multi-Agency Contracting Games? (January 1, 2014). Center for Applied Economics and Policy Research (CAEPR) Working Paper No. 2012-008. Available at SSRN: http://ssrn.com/abstract=2186012 or http://dx.doi.org/10.2139/ssrn.2186012

Contact Information

Yu Chen (Contact Author)
Nanjing University - School of Economics ( email )
Nanjing, Jiangsu 210093
China
8625-83621970 (Phone)
HOME PAGE: http://nubs.nju.edu.cn/en/index.php
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