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Dynamic Multiagent Incentive Contracts: Existence, Uniqueness, and Implementation

Author

Listed:
  • Qi Luo

    (Department of Industrial Engineering, Clemson University, Clemson, SC 29634, USA
    Current address: 277B Freeman Hall, Clemson, SC 29634 , USA.)

  • Romesh Saigal

    (Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, MI 48109, USA
    Current address: 2883 IOE Building, 1205 Beal Avenue, Ann Arbor, MI 48109-2117, USA.)

Abstract

Multiagent incentive contracts are advanced techniques for solving decentralized decision-making problems with asymmetric information. The principal designs contracts aiming to incentivize non-cooperating agents to act in his or her interest. Due to the asymmetric information, the principal must balance the efficiency loss and the security for keeping the agents. We prove both the existence conditions for optimality and the uniqueness conditions for computational tractability. The coupled principal-agent problems are converted to solving a Hamilton–Jacobi–Bellman equation with equilibrium constraints. Extending the incentive contract to a multiagent setting with history-dependent terminal conditions opens the door to new applications in corporate finance, institutional design, and operations research.

Suggested Citation

  • Qi Luo & Romesh Saigal, 2020. "Dynamic Multiagent Incentive Contracts: Existence, Uniqueness, and Implementation," Mathematics, MDPI, vol. 9(1), pages 1-17, December.
    • Handle: RePEc:gam:jmathe:v:9:y:2020:i:1:p:19-:d:467189
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    References listed on IDEAS

    as
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