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Contracting theory with competitive interacting Agents

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Date
2016
Collection title
Cahier de recherche CEREMADE, Université Paris-Dauphine
Link to item file
https://hal.archives-ouvertes.fr/hal-01481381
Dewey
Probabilités et mathématiques appliquées
Sujet
Principal multi-agents problems; relative performance; Moral hazard; competition; Nash equilibrium; Multidimensional quadratic BSDEs
URI
https://basepub.dauphine.fr/handle/123456789/17197
Collections
  • CEREMADE : Publications
Metadata
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Author
Elie, Romuald
Possamaï, Dylan
Type
Document de travail / Working paper
Item number of pages
36
Abstract (EN)
In a framework close to the one developed by Holmström and Milgrom [44], we study the optimal contracting scheme between a Principal and several Agents. Each hired Agent is in charge of one project, and can make efforts towards managing his own project, as well as impact (positively or negatively) the projects of the other Agents. Considering economic agents in competition with relative performance concerns, we derive the optimal contracts in both first best and moral hazard settings. The enhanced resolution methodology relies heavily on the connection between Nash equilibria and multidimensional quadratic BSDEs. The optimal contracts are linear and each agent is paid a fixed proportion of the terminal value of all the projects of the firm. Besides, each Agent receives his reservation utility, and those with high competitive appetence are assigned less volatile projects, and shall even receive help from the other Agents. From the principal point of view, it is in the firm interest in our model to strongly diversify the competitive appetence of the Agents.

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