Mechanism design for general screening problems with moral hazard

Summary We study the problem faced by an incomplete information monopolist seeking to design a line of contracts so as to simultaneously screen consumers by type and resolve the moral hazard problems associated with contract performance. We formulate the monopolist's problem as a mechanism design problem in which the set of consumer types is taken to be a Polish space, and the contract space an arbitrary compact metric space. Allowing for risk aversion on the part of the monopolist and consumers, and taking as the feasible set of mechanisms the collection of all measurable functions defined on the space of consumer types with values in the space of contracts, we present a new characterization of incentive compatibility in an infinite dimensional setting which allows us to reformulate the monopolist's design problem as an unconstrained optimization problem (i.e., as a problem without the incentive compatibility contraints). Using simple techniques, we then demonstrate the existence of an optimal screening mechanism for the monopolist. We thus extend the existing analysis of the incomplete information monopoly problem to an infinite dimensional setting with moral hazard, and we provide an existence result not available in the existing literature.I thank seminar participants at Indiana University, McGill University, and the University of Calgary for helpful comments. I also thank Kerry Back, Bob Becker, Praveen Kumar, Mark Johnson, Ramon Marimon, Murat Sertel, Bill Sealey, Gordon Sick, and Nicholas Yannelis for helpful comments. The comments and suggestions of an anonymous referee are especially appreciated. I am solely responsible for any errors.     

国有控股公司治理中合谋防御的机制设计

本文对委托人、监督者和代理人的主体进行重新界定,并对无合谋防御机制时的情形作了分析,再针对合谋行为设计出监督者主导和委托人主导两种合谋防御机制。在监督者主导的防御机制中,委托人事前给出一组契约,授权监督者向代理人提供子契约,委托人提供的契约可使得监督者和代理人所得到的转移支付都不小于其实施合谋时的信息租金,让监督者和代理人没有激励进行合谋。在委托人主导型的防御机制中,委托人同时与监督者和代理人签订契约,如代理人谎报自己的成本类型,委托人会对代理人实施罚金,而给予监督者奖励,让监督者有动力积极履行职责,且能激励高成本类型的代理人降低生产成本。     

Role of linking mechanisms in multitask agency with hidden information

We investigate the adverse selection problem where a principal delegates multiple tasks to an agent. We characterize the virtually implementable social choice functions by using the linking mechanism proposed by Jackson and Sonnenschein (2007) [20] that restricts the message spaces. The principal does not require any incentive wage schemes and can therefore avoid any information rent and welfare loss. We show the resemblance between the functioning of this message space restriction and that of incentive wage schemes. We also extend the results of the single-agent model to the multi-agent model.     

Asymmetric awareness and moral hazard

This paper introduces asymmetric awareness into the classical principal–agent model and discusses the optimal contract between a fully aware principal and an unaware agent. The principal enlarges the agentʼs awareness strategically when proposing a contract and faces a tradeoff between participation and incentives. Leaving the agent unaware allows the principal to exploit the agentʼs incomplete understanding of the world, relaxing the participation constraint, while making the agent aware enables the principal to use the revealed contingencies as signals about the agentʼs action choice, relaxing the incentive constraint. The optimal contract reveals contingencies that have low probability but are highly informative about the agentʼs effort.     

An Incentive Contract With Asymmetric Information

This Paper considers the problem of designing an optimal incentive contract between a retailer and a manufacturer when the former has private information about demand and its own cost. Based on a multi-period framework, we show that the incentive franchise contract can bring about the fist-best outcome of vertical integration when the retailer has complete information about consumers' preferences. [L42, D8]     

Competition and the reform of incentive schemes in the regulated sector

We consider a regulation problem with complete contracting in a principal–agent model with adverse selection and review within this model the various channels by which external competition parameters affect incentives within the regulated firm. The channels are: the principal’s information, the principal’s objective function, the agent’s incentive constraint, the agent’s participation constraint. We consider in particular a better information structure, a threat of liquidation, a fight for talent, a more efficient private sector, and the existence of better substitutes. We characterize in each case the conditions under which the effect on incentives is positive.     

Robustness of simple menus of contracts in cost-based procurement

We consider a model of cost-based procurement in which the principal faces Knightian uncertainty about the agent's preferences for cost reduction. We show that a particularly simple incentive scheme—a menu comprising a fixed-price contract and a cost-reimbursement contract—minimizes the maximum expected payment, where this maximum is taken over the set of possible agent preferences. For some parameters of the problem, a range of alternative incentive schemes also satisfy this criterion. We show that the simple incentive scheme is not weakly dominated by any of the alternatives: there does not exist an alternative mechanism for which the expected payment is no higher for all realizations of the agent's preferences and strictly lower for some realization.     

Equilibrium theory with asymmetric information and with infinitely many commodities

The traditional deterministic general equilibrium theory with infinitely many commodities cannot cover economies with private information constraints on the consumption sets. We bring the level of asymmetric information equilibrium theory at par with that of the deterministic one. In particular, we establish results on equilibrium existence for exchange economies with asymmetric (differential) information and with an infinite dimensional commodity space. Our new equilibrium existence theorems include, as a special case, classical results, e.g. Bewley [Existence of equilibria in economies with infinitely many commodities, J. Econ. Theory 4 (1972) 514-540] or Mas-Colell [The price equilibrium existence problem in topological vector lattices, Econometrica 54 (1986) 1039-1053].     

风险投资家的最优激励契约模型研究--一种基于逆向选择和道德风险条件下的博弈模型分析

为减少风险投资融资中风险投资家的逆向选择和道德风险,风险投资者必须设立一套有效的激励机制来让风险投资家选择,从而根据风险投资家选择的结果来甄别其真实能力类型,同时又能激励其努力工作。文章建立了风险投资家能力类型和努力都是不可观测条件下的最优激励契约模型,并根据显示原理,利用最优控制理论求出了最优解进而进行了分析。得出的结论是:最优激励契约能使高能力风险投资家乐于选择具有高强度激励、低固定收入和风险小的项目,同时又能激励其签约后更加努力工作。     

Informed principal with correlation

In this paper we analyze an adverse selection model with one principal and one agent, who are both risk neutral and have private information. We assume that the private information of the principal is correlated with that of the agent. The main result of the paper is that the principal can extract a larger share of the surplus from the agent than in the case where her information is public. The principal can design such a contract because she exploits the fact that her type is an informative signal on the agent's one. We fully characterize the equilibrium of the game in which different types of principal offer the same menu of contracts that leaves the agent uninformed about the principal's type. This gives more freedom to the principal when setting the transfers because the agent's constraints need to hold only at an interim stage.     

Message-contingent delegation

The paper studies the role of delegation and authority in a principal-agent relation in which a non-contractible action has to be taken. The agent has private information relevant for the principal, but has policy preferences different from the principal. Consequently, an information revelation problem arises. I consider a partially incomplete contracting environment with contractibility of messages and decision rights and with transferable utility. I contribute to the literature by allowing for message-contingent delegation and by deriving the optimal partially incomplete contract. It is shown that message-contingent delegation creates incentives for information revelation and may outperform unconditional authority and unconditional delegation.     

The effects of pay regulation when agents are loss averse

This article analyses the effects of a regulatory cap on executive pay when the agent is loss averse. I use a principal–agent model with moral hazard in which a principal and an agent bargain over an incentive contract. I show that even a non-binding cap on the agent’s payments can have consequences for the bargained outcome and consequently for the effort the agent exerts.     

Order with Some Law: Complementarity versus Substitution of Formal and Informal Arrangements

While some argue that incomplete incentive contracts facilitatethe self-enforcement of informal dealings, other authors submitthat they substitute for or "crowd out" social norms supportinginformal arrangements. We use experimental evidence to testthese theories by manipulating the extent to which individualstransact repeatedly and the level of contract costs. We findthat, by enforcing contractible exchange dimensions, contractsfacilitate the self-enforcement of noncontractible dimensions.This complementarity effect is particularly important when repetitionis unlikely and thus self-enforcement is difficult. Althoughour data suggest the existence of reciprocity as an alternative,informal enforcement mechanism, we do not find evidence thatcontracts substitute for this social norm.     

Mechanism design with side payments: Individual rationality and iterative dominance

We investigate the collective decision with incomplete information and side payments. We show that a direct mechanism associated with the social choice function that satisfies budget balancing, incentive compatibility, and interim individual rationality exists for generic prior distributions. We consider the possibility that a risk-averse principal extracts full surplus in agency problems with adverse selection. With regard to generic prior distributions, we show that there exists a modified direct mechanism associated with the virtual social choice function, which satisfies budget balancing and interim individual rationality, such that truth telling is the unique three times iteratively undominated message rule profile.     

联合确定基数合约:对魏茨曼模型的一个改进

本文针对国内外委托代理理论主要局限于理论分析层面而实用性不强的特点,在概要评论有关利润基数确定的相关文献的基础上,通过对美国一家公司委托代理实际案例的研究,提出了旨在能够解决实际委托代理关系的"联合确定基数法"。文章分析了联合确定基数法与棘轮效应模型的区别和联系,以数学方法论证了联合确定基数法的若干命题,描述了公司利润基数确定的利益诱导机制,并对比分析了联合确定基数法与西方教科书中的"激励设计模型"。本文试图以联合确定基数法为核心内容的一次性动态模型,代替蕴含着讨价还价过程的多次性动态模型。     

Competition between asymmetrically informed principals

Summary. This paper derives the set of equilibria for common agency games in which the principals compete in piece rates and lump sum payments and one principal has incomplete information about the agent's preferences. We show that the uninformed principal's expected payoff function is discontinuous with respect to the identity of the marginal agent type. This discontinuity is shown to support an open set of equilibria. For games in which the first-best equilibrium strategies are measurable with respect to the uninformed principal's information partition, this result implies the existence of an open set of Pareto inefficient equilibria. Received: December 5, 1995; revised version August 18, 1996     

Why it Pays to Conceal: On the Optimal Timing of Acquiring Verifiable Information

Abstract. We consider optimal contracts when a principal has two sources to detect bad projects. The first one is an information technology without agency costs (IT_P), whereas the second one is the expertise of an agent subject to moral hazard, adverse selection and limited liability (IT_A). First, we show that the principal does not necessarily benefit from access to additional information and thereby may prefer to ignore it. Second, we discuss different timings of information release, i.e., a disclosure contract offered to the agent after the principal announced the result of IT_P , and a concealment contract where the agent exerts effort before IT_P is checked. We find that concealment is superior whenever the quality of IT_P is sufficiently low. Then, IT_P is almost worthless under a disclosure contract, while it can still be exploited to reduce the agent's information rent under concealment. If the quality of IT_P improves, disclosure can be superior as it allows to adjust the agent's effort to the updated expected quality of the project. However, even for a highly informative IT_P , concealment can be superior as it mitigates the adverse selection problem.     

Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records

We estimate an agency model using the payroll records of a copper mine that paid a production bonus to teams of workers. We estimate the cost of incomplete information due to insurance and incentives considerations and the inefficiency caused by the simple form of the incentive contract itself. At the estimated parameters the cost of worker risk aversion (insurance) is of similar magnitude to moral hazard (incentives). Overall, incomplete information accounted for one-half of the bonus system's inefficiency relative to potential full information profits. The other half is attributed to the bonus system's inefficient generation of incentives and insurance relative to the optimal incentive contract.     

国有企业委托代理风险的特殊性及其防范

委托代理关系是内生于国有企业的，国有企业委托代理关系的特征决定了国有企业中不仅存在着代理人风险，而且还存在着一种特殊的风险——委托人风险。防范国有企业委托代理风险问题的核心在于两个方面：一是深化产权制度改革，培育出真正有行为能力、有监督积极性的合格委托人；二是建立合理的激励约束机制和经营者选拔机制，使真正有能力的企业家成为国有企业的经营者。