[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v55y2009i5p752-762.html
   My bibliography  Save this article

Quasi-Robust Multiagent Contracts

Author

Listed:
  • Anil Arya

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

  • Joel Demski

    (Fisher School of Accounting, University of Florida, Gainesville, Florida 32611)

  • Jonathan Glover

    (Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

  • Pierre Liang

    (Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract
A criticism of mechanism design theory is that the optimal mechanism designed for one environment can produce drastically different actions, outcomes, and payoffs in a second, even slightly different, environment. In this sense, the theoretically optimal mechanisms usually studied are not "robust." To study robust mechanisms while maintaining an expected utility maximization approach, we study a multiagent model in which the mechanism must be designed before the environment is as well understood as is usually assumed. The particular model is of an auction setting with binary private values. Our main result is that if the prior belief about the correlation in the agents' values is diffuse enough, the optimal Bayesian-Nash auction must also satisfy dominant strategy incentive constraints. Furthermore, when the optimal auction does provide dominant strategy incentives, it takes one of two forms: (i) if perfect correlation and negative correlation are excluded as possibilities, the auction incorporates all information about the prior belief over the possible correlations, and (ii) if either perfect correlation or negative correlation is a possibility, the auction does not incorporate any correlation information and can be described as a modified Vickrey auction.

Suggested Citation

  • Anil Arya & Joel Demski & Jonathan Glover & Pierre Liang, 2009. "Quasi-Robust Multiagent Contracts," Management Science, INFORMS, vol. 55(5), pages 752-762, May.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:5:p:752-762
    DOI: 10.1287/mnsc.1080.0967
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1080.0967
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1080.0967?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kim-Sau Chung & J.C. Ely, 2007. "Foundations of Dominant-Strategy Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 447-476.
    2. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 413-438.
    3. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 2, pages 49-96, World Scientific Publishing Co. Pte. Ltd..
    4. Mookherjee, Dilip & Reichelstein, Stefan, 1992. "Dominant strategy implementation of Bayesian incentive compatible allocation rules," Journal of Economic Theory, Elsevier, vol. 56(2), pages 378-399, April.
    5. Ma, Ching-to & Moore, John & Turnbull, Stephen, 1988. "Stopping agents from "cheating"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 355-372, December.
    6. Demski, Joel S. & Sappington, David, 1984. "Optimal incentive contracts with multiple agents," Journal of Economic Theory, Elsevier, vol. 33(1), pages 152-171, June.
    7. Dirk Bergemann & Stephen Morris, 2012. "Ex Post Implementation," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 3, pages 97-152, World Scientific Publishing Co. Pte. Ltd..
    8. Demski, JS & Dye, RA, 1999. "Risk, return, and moral hazard," Journal of Accounting Research, Wiley Blackwell, vol. 37(1), pages 27-55.
    9. Robert Evans, 2008. "Simple Efficient Contracts in Complex Environments," Econometrica, Econometric Society, vol. 76(3), pages 459-491, May.
    10. Lopomo, Giuseppe, 1998. "The English Auction Is Optimal Among Simple Sequential Auctions," Journal of Economic Theory, Elsevier, vol. 82(1), pages 144-166, September.
    11. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    12. Neeman, Zvika, 2003. "The effectiveness of English auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 214-238, May.
    13. Parreiras, Sergio O., 2005. "Correlated information, mechanism design and informational rents," Journal of Economic Theory, Elsevier, vol. 123(2), pages 210-217, August.
    14. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sunil Dutta & Stefan Reichelstein, 2021. "Capacity Rights and Full-Cost Transfer Pricing," Management Science, INFORMS, vol. 67(2), pages 1303-1325, February.
    2. Iván Marinovic, 2017. "Delegated Bidding and the Allocative Effect of Accounting Rules," Management Science, INFORMS, vol. 63(7), pages 2181-2196, July.
    3. Pablo Casas-Arce & Thomas Kittsteiner & F. Asís Martínez-Jerez, 2019. "Contracting with Opportunistic Partners: Theory and Application to Technology Development and Innovation," Management Science, INFORMS, vol. 65(2), pages 842-858, February.
    4. Baldenius, Tim & Deng, Mingcherng & Li, Jing, 2024. "Accounting information and risk shifting with asymmetrically informed creditors," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    5. Korok Ray & Maris Goldmanis, 2012. "Efficient Cost Allocation," Management Science, INFORMS, vol. 58(7), pages 1341-1356, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tilman Börgers, 2017. "(No) Foundations of dominant-strategy mechanisms: a comment on Chung and Ely (2007)," Review of Economic Design, Springer;Society for Economic Design, vol. 21(2), pages 73-82, June.
    2. Laffont, Jean Jacques, 1997. "Collusion et information asymétrique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 73(4), pages 595-609, décembre.
    3. He, Wei & Li, Jiangtao, 2022. "Correlation-robust auction design," Journal of Economic Theory, Elsevier, vol. 200(C).
    4. Che,Y.-K. & Kim,J., 2004. "Collusion-proof implementation of optimal mechanisms," Working papers 4, Wisconsin Madison - Social Systems.
    5. Aviad Heifetz & Zvika Neeman, 2006. "On the Generic (Im)Possibility of Full Surplus Extraction in Mechanism Design," Econometrica, Econometric Society, vol. 74(1), pages 213-233, January.
    6. Robert Kleinberg & Bo Waggoner & E. Glen Weyl, 2016. "Descending Price Optimally Coordinates Search," Papers 1603.07682, arXiv.org, revised Dec 2016.
    7. Kim-Sau Chung & J.C. Ely, 2007. "Foundations of Dominant-Strategy Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 447-476.
    8. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 2, pages 49-96, World Scientific Publishing Co. Pte. Ltd..
    9. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design: An Introduction," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 1, pages 1-48, World Scientific Publishing Co. Pte. Ltd..
    10. Matthew O. Jackson, 2001. "A crash course in implementation theory," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(4), pages 655-708.
    11. Neeman, Zvika & Pavlov, Gregory, 2008. "Renegotiation-Proof Mechanism Design," Foerder Institute for Economic Research Working Papers 275717, Tel-Aviv University > Foerder Institute for Economic Research.
    12. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    13. Jehiel, Philippe & Moldovanu, Benny, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 142, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    14. Hannu Vartiainen, 2003. "Auction Design without Commitment," Working Papers 2003.24, Fondazione Eni Enrico Mattei.
    15. Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February.
    16. , & ,, 2015. "Implementation with interdependent valuations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    17. Lucia Quesada, 2003. "Modeling collusion as an informed principal problem," Game Theory and Information 0304002, University Library of Munich, Germany.
    18. Obara Ichiro, 2008. "The Full Surplus Extraction Theorem with Hidden Actions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-28, March.
    19. Eshien Chong & Freddy Huet, 2009. "Yardstick Competition, Franchise Bidding and Firms’ Incentives to Collude," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 149-169, September.
    20. Herweg, Fabian & Schmidt, Klaus M., 2020. "Bayesian implementation and rent extraction in a multi-dimensional procurement problem," International Journal of Industrial Organization, Elsevier, vol. 70(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:55:y:2009:i:5:p:752-762. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.