An overview of incentive contracting

Abstract

Agents may contract some of their tasks to other agents even when they do not share a common goal. An agent may try to contract some of the tasks that it cannot perform by itself, or that may be performed more efficiently by other agents. One self-motivated agent may convince another self-motivated agent to help it with its task, by promises of rewards, even if the agents are not assumed to be benevolent. We propose techniques that provide efficient ways for agents to make incentive contracts in varied situations: when agents have full information about the environment and each other, or when agents do not know the exact state of the world. We consider situations of repeated encounters, cases of asymmetric information, situations where the agents lack information about each other, and cases where an agent subcontracts a task to a group of agents. Situations in which there is competition among possible contractor agents or possible manager agents are also considered. In all situations we assume that the contractor can choose a level of effort when carrying out the task and we would like the contractor to carry out the task efficiently without the need of close observation by the manager.