Optimal Incentives for Participation with Type-Dependent Externalities

Authors:
Michal Feldman;Ran Tessler;Yoav Wilf
Affiliations:
School of Business Administration and Center for the Study of Rationality, Hebrew University of Jerusalem,;Mathematics Division, Hebrew University of Jerusalem,;Computer Science Division, Hebrew University of Jerusalem,
Venue:
WINE '09 Proceedings of the 5th International Workshop on Internet and Network Economics
Year:
2009

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Abstract

We study a "principal-agent" setting in which a principal motivates a team of agents to participate in her project (e.g., friends in a social event or store owners in a shopping mall). A key element in our model is the externalities among the agents; i.e., the benefits that the agents gain from each others' participation. Bernstein and Winter [6] devised a basic model for this setting and characterized the optimal incentive mechanism inducing full participation as a unique Nash equilibrium. Here we suggest and embark on several generalizations and extensions to the basic model, which are grounded in real-life scenarios. First, we study the effect of side payments among the agents on the structure of the optimal mechanism and the principal's utility. Second, we study the optimal partition problem in settings where the principal operates multiple parallel projects.