Common Agency and Computational Complexity: Theory and Experimental Evidence

CentER Working Paper No. 36

Posted: 20 Feb 2000  

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)

Andrea Prat

London School of Economics (LSE) - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: 1999

Abstract

In a common agency game, several principals try to influence the behavior of an agent. Common agency games typically have multiple equilibria. One class of equilibria, called truthful, has been identified by Bernheim and Whinston and has found widespread use in the political economy literature. In this paper we identify another class of equilibria, which we call natural. In a natural equilibrium, each principal offers a strictly positive contribution on at most one alternative. We show that a natural equilibrium always exists and that its computational complexity is much smaller than that of a truthful equilibrium. To compare the predictive power of the two concepts, we run an experiment on a common agency game for which the two equilibria predict a different equilibrium alternative. The results strongly reject the truthful equilibrium. The alternative predicted by the natural equilibrium is chosen in 65% of the matches, while the one predicted by the truthful equilibrium is chosen in less than 5% of the matches.

JEL Classification: C70

Suggested Citation

Kirchsteiger, Georg and Prat, Andrea, Common Agency and Computational Complexity: Theory and Experimental Evidence (1999). CentER Working Paper No. 36. Available at SSRN: https://ssrn.com/abstract=199745

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Av. F. D. Roosevelt 50
CP 114
Brussels, B-1050
Belgium

HOME PAGE: http://www.ecares.org/people/members/kirchsteiger/kirchsteiger/home.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Andrea Prat (Contact Author)

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6992 (Phone)
+44 20 7955 6951 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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