Addressing Strategic Uncertainty with Incentives and Information
Halac, Marina, Elliot Lipnowski, and Daniel Rappoport. 2022. "Addressing Strategic Uncertainty with Incentives and Information." AEA Papers and Proceedings, 112: 431-37.
A principal privately contracts with a set of agents who then simultaneously make a binary decision. Each contract specifies an individual allocation and the information the agent is given about a fundamental state and other agents' contracts. We study the principal's optimal scheme that induces a desired action profile as the unique rationalizable outcome. Our main result reduces this multiagent problem to a two-step procedure where information is designed agent-by-agent: the principal chooses a fundamental-state-contingent distribution over agent rankings and, separately for each agent, the agent's information about the realized ranking and fundamental states. We illustrate with a team-production application.