Representing Equilibrium Aggregates in Aggregate Games with Applications to Common Agency

36 Pages Posted: 15 Feb 2014 Last revised: 3 Mar 2015

See all articles by David Martimort

David Martimort

Paris School of Economics (PSE)

Lars Stole

University of Chicago - Booth School of Business

Date Written: October 5, 1012

Abstract

An aggregate game is a normal-form game with the property that each player’s payoff is a function of only his own strategy and an aggregate of the strategy profile of all players. Such games possess properties that can often yield simple characterizations of equilibrium aggregates without re- quiring that one solves for the equilibrium strategy profile. When payoffs have a quasi-linear structure and a degree of symmetry, we construct a self- generating maximization program over the space of aggregates with the property that the solution set corresponds to the set of equilibrium aggre- gates of the original n-player game. We illustrate the value of this approach in common-agency games where the players’ strategy space is an infinite- dimensional space of nonlinear contracts. We derive equilibrium existence and characterization theorems for both the adverse selection and moral haz- ard versions of these games.

Keywords: game theory, aggregate games, common agency

JEL Classification: C70, D82

Suggested Citation

Martimort, David and Stole, Lars A., Representing Equilibrium Aggregates in Aggregate Games with Applications to Common Agency (October 5, 1012). Games and Economic Behavior, Vol. 76, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=2395486 or http://dx.doi.org/10.2139/ssrn.2395486

David Martimort

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Lars A. Stole (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)

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