Optimal contingent delegation

Abstract

This paper investigates a two-agent mechanism design problem without transfers, where the principal must decide one action for each agent. In our framework, agents only care about their own adaptation, and any deterministic dominant incentive compatible decision rule is equivalent to contingent delegation: the delegation set offered to one agent depends on the other's report. By contrast, the principal cares about both adaptation and coordination. We provide sufficient conditions under which contingent interval delegation is optimal and solve the optimal contingent interval delegation under fairly general conditions. Remarkably, the optimal interval delegation is completely determined by combining and modifying the solutions to a class of simple single-agent problems, where the other agent is assumed to report truthfully and choose his most preferred action.