Multiagent Incentive Contracts: Existence, Uniqueness and Implementation

17 Pages Posted: 19 Sep 2017 Last revised: 30 Sep 2019

See all articles by Qi Luo

Qi Luo

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering

Romesh Saigal

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering

Date Written: September 17, 2017

Abstract

Incentive contracts with multiple agents is a classical decentralized decision-making problem with asymmetric information. Contract design aims to incentivize noncooperative agents to act in the principal's interest over a planning horizon. We extend the single-agent incentive contract to a multiagent setting with history-dependent terminal conditions. Our contributions include: (a) Finding sufficient conditions for the existence of optimal multiagent incentive contracts and conditions under which they form a unique Nash Equilibrium; (b) Showing that the optimal multiagent incentive contracts can be solved by a Hamilton-Jacobi-Bellman (HJB) equation with equilibrium constraints; (c) Proposing a backward iterative algorithm to solve the problem.

Keywords: Principal Multi-Agent Problem, Continuous-Time Approach, Kakutani Fixed Point Theorem, Subgame Perfect Equilibrium, Hamilton-Jacobi-Bellman Equation, Differential Game

JEL Classification: C, G

Suggested Citation

Luo, Qi and Saigal, Romesh, Multiagent Incentive Contracts: Existence, Uniqueness and Implementation (September 17, 2017). Available at SSRN: https://ssrn.com/abstract=3038403 or http://dx.doi.org/10.2139/ssrn.3038403

Qi Luo

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering ( email )

1205 Beal Avenue
Ann Arbor, MI 48109
United States

Romesh Saigal (Contact Author)

University of Michigan at Ann Arbor - Department of Industrial and Operations Engineering ( email )

1205 Beal Avenue
Ann Arbor, MI 48109
United States

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