Common Agency and Computational Complexity: Theory and Experimental Evidence
Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)
London School of Economics (LSE) - Department of Economics; Centre for Economic Policy Research (CEPR)
CentER Working Paper No. 36
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
Date posted: February 20, 2000