Damned If You Do and Damned If You Don’t: Two Masters

Salvatore Modica, Rohan Dutta, David K. Levine

Risultato della ricerca: Articlepeer review

2 Citazioni (Scopus)

Abstract

We study common agency problems in which principals (groups) make costly commit-ments to incentives that are conditioned on imperfect signals of the agent’s action. Ourframework allows for incentives to be either rewards or punishments and an equilibrium al-ways exists. For our canonical example with two principals we obtain a unique equilibrium,which typically involves randomization by both principals. Greater similarity between prin-cipals leads to more aggressive competition. The principals weakly prefer punishment torewards, sometimes strictly. With rewards an agent voluntarily joins both groups; with pun-ishment it depends on whether severe punishments are feasible and cheap for the principals.We study whether introducing an attractive compromise reduces competition between prin-cipals. Our framework of imperfect monitoring offers a natural perturbation of the standardcommon agency model, which results in sharper equilibrium predictions. The limit equilib-rium prediction provides support to both truthful equilibria and the competing notion ofnatural equilibria, which unlike the former may be inefficient.
Lingua originaleEnglish
pagine (da-a)101-125
Numero di pagine25
RivistaJournal of Economic Theory
Volume177
Stato di pubblicazionePublished - 2018

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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