Estimation of a Non-Parametric Principal-Agent Model with Hidden Actions

69 Pages Posted: 6 Aug 2019 Last revised: 28 Mar 2021

See all articles by Nur Kaynar

Nur Kaynar

University of California, Los Angeles (UCLA) - Anderson School of Management

Auyon Siddiq

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: August 2, 2019

Abstract

The design of performance-based incentives -- commonly used in online labor platforms -- is naturally posed as a moral-hazard principal-agent problem. A key input in this setting is the dependence of agent output on effort, which is unlikely to be known in practice. In this paper, we consider the estimation of a principal-agent model, with a focus on the parameters that link agent output and effort. We first present an estimator for a non-parametric agent model and show it to be statistically consistent. To circumvent computational challenges with solving the estimation problem exactly, we approximate it as an integer program, which we solve through a column generation algorithm that uses hypothesis tests to select variables. We show that our approximation scheme and solution technique both preserve the estimator's consistency and combine to dramatically reduce the computational time required to obtain competitive parameter estimates. To demonstrate our approach, we conducted a randomized experiment on a crowdwork platform (Amazon Mechanical Turk), where incentive contracts were randomly assigned among a pool of workers completing the same task. We present numerical results illustrating how the proposed estimator combined with experimentation can shed light on the efficacy of performance-based incentives.

Keywords: principal-agent problems, performance-based incentives, estimation, integer programming, crowdwork platforms

Suggested Citation

Kaynar, Nur and Siddiq, Auyon, Estimation of a Non-Parametric Principal-Agent Model with Hidden Actions (August 2, 2019). Available at SSRN: https://ssrn.com/abstract=3431383 or http://dx.doi.org/10.2139/ssrn.3431383

Nur Kaynar

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Auyon Siddiq (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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