Common Agency Games Research Articles

Contractual Externalities and Common Agency Equilibria

This paper characterizes the equilibrium sets of common agency games with direct externalities between principals when they compete with nonlinear prices. Direct externalities arise when the contracting variable of one principal directly affects the other principal's payoff. First, we characterize the set of pure-strategy, symmetric equilibria under complete information of an intrinsic common agency game. This set of equilibria is large because of the presence of price-output offers by the principals that are unchosen by the agent in equilibrium. Equilibria exist in which principals offer out-of-equilibrium price-output choices to the agent and induce aggressive, low-price behavior corresponding to marginal-cost pricing in the extreme case. We then show that this equilibrium set of outputs is robust to the possibility that agent refuses any of the offered contracts; the case of delegated agency. Second, we introduce asymmetric information in order to rationalize existing nonlinear pricing contracts. The introduction of asymmetric information has the effect of restricting the set of equilibrium outputs of the intrinsic common agency game.

Lobbying under political uncertainty

This paper considers a model of lobbying described as a common agency game; it departs from the current literature by assuming that the special interest groups are not a priori organized or unorganized and that the type of the politician is not common knowledge. We characterize equilibria when the choice set of the politician consists of two policies; we discuss the conditions leading to efficiency and the characteristics of the groups explaining their relative success in the process of influence. We also offer some results for the general case, including disjoint necessary and sufficient conditions for the equilibria to be efficient.

The Revelation and Delegation Principles in Common Agency Games

In the context of common agency adverse-selection games we illustrate that the revelation cannot be applied to study equilibria of the multi-principal games. We then demonstrate that an extension of the taxation – what we term the delegation principle – can be used to characterize the set of all common agency equilibria. (This abstract was borrowed from another version of this item.)

Inefficient equilibria in lobbying

Lobbying is often represented as a common agency game. Common agency games typically have multiple equilibria. One class of equilibria, called truthful, has been identified by Bernheim and Whinston [Quarterly Journal of Economics 1986;101(1):1–31]. In this paper, we identify another class of equilibria, which we call natural, in which each principal offers a positive contribution on at most one alternative. We run an experiment on a common agency game for which the two equilibria predict a different equilibrium alternative. The alternative predicted by the natural equilibrium is chosen in 65% of the matches, while the one predicted by the truthful equilibrium is chosen in less than 5% of the matches.

Contractual Externalities and Common Agency Equilibria

This paper characterizes the equilibrium sets of an intrinsic common agency game with direct externalities between principals both under complete and asymmetric information. Direct externalities arise when the contracting variable of one principal affects directly the other principal's payoff. Out-of-equilibrium messages are used by principals to precommit themselves to distort their strategic behavior. We characterize pure-strategy symmetric equilibria arising in such games under complete information and show their multiplicity. We then introduce asymmetric information to refine the set of feasible conjectures. We show that a unique equilibrium may be selected by conveniently perturbing the information structure. Both under complete and asymmetric information, we show that the equilibrium outputs of the intrinsic common agency game are also equilibrium outputs of the delegated common agency game, although the two games differ in terms of the distribution of surplus they involve.

The Revelation and Delegation Principles in Common Agency Games

In the context of common agency adverse-selection games we illustrate that the revelation principle cannot be applied to study equilibria of the multi-principal games. We then demonstrate that an extension of the taxation principle - what we term the delegation principle - can be used to characterize the set of all common agency equilibria.

Common Agency Equilibria with Discrete Mechanisms and Discrete Types

This paper characterizes the equilibrium sets of an intrinsic common agency game with discrete types and direct revelation mechanisms. After presenting a general algorithm to find the pure-strategy equilibria of this game, we use it to characterize these equilibria when the two principals control activities which are complements in the agent’s objective function. Some of those equilibria may entail allocative inefficiency. For the case of substitutes, we demonstrate non-existence of such equilibria with direct mechanisms, but existence may be obtained with indirect mechanisms. Finally, we relax the equilibrium concept and analyze quasi-equilibria. We show that existence is then guaranteed and characterize the corresponding allocations.

Termination and endgame scenarios in international joint ventures

The paper studies the applicability of game theory to the last period of an international joint venture life cycle. Since the past three decades were marked by the prosperity of multinational enterprises, IJVs are coming more and more in a mature stage. The termination of a cross–border business transaction causes, in general, various problems and needs mechanisms to solve. Besides legal considerations, issues of decision–making in endgame scenarios, such as the strategic settings of co–operation and control, play an important role. The special structure of the IJV–triangle might tell more about future ways of termination and the effect of co–operation and conflict. Not only the constellation of the players but also the duration of an IJV contract (short–term and long–term) has an impact on the behaviour of the players in the last stage of the life cycle. Using theoretical frameworks of game theory like common agency games and repeated games in combination offers a tool for dealing with special termination issues. Divorce scenarios capture problems of reputation, learning and renegotiation in which the repetition of certain actions leads to the end of the game.

Endogenous trade policy under foreign direct investment

Using Bernheim and Whinston (1986) common agency game, we endogenize trade policy in a duopoly composed of a domestic firm and a foreign firm, where both firms influence the domestic government's trade policy via their contributions. The foreign firm can jump over trade restrictions by undertaking foreign direct investment (FDI) in the domestic market. The government prefers a voluntary export restraint (VER) to a tariff for two reasons. First, a VER leads to higher contributions from the foreign firm than a tariff. Second, a VER provides a higher level of protection to the domestic firm without generating FDI by the foreign firm.

Renegotiation Design with Multiple Regulators

One striking feature of the internal organization of governments is the existence of multiple regulators. This paper explains this organizational choice as coming from the government's limited ability to commit. The separation of powers between two regulators is modeled as a Stackelberg common agency game. With respect to the case of a single regulator, the allocative efficiency and the regulated firm's informational rent are both reduced in the unique equilibrium of this game. However, when regulators have a limited ability to commit, this static cost of regulators separation becomes a dynamic benefit. Separation makes renegotiation harder and improves commitment. Journal of Economic Literature Classification Numbers: D82, L51.

On Coalition-Proof Nash Equilibria in Common Agency Games

In this paper we consider two notions of a coalitional deviation:strict deviation, where each of member of a deviating group is better off, andweak deviation, where at least one member of a deviating group is better off while all other members are at least as well off. We then examine, for the class of common agency games introduced in Bernheim and Whinston (Quart. J. Econ.101(1986), 1–31), the structure and properties of two notions of a coalition-proof Nash equilibrium, generated by strict and weak deviation. We also study a relationship between coalition-proof equilibria, strong equilibria, and Pareto undominated Nash equilibria.Journal of Economic LiteratureClassification Numbers: C72, D79.

Incentive Compatible Information Transfer Between Asymmetrically Informed Principals

In this paper we use a model of tax competition to study the role of information sharing in common agency problems. Two national governments are assumed to compete in tax schedules for the revenues and output of a multinational firm in which only one of the governments is informed about the multinational's production costs. This asymmetry of information among the governments creates two information sources for the uninformed government: the firm and the informed government. We derive and compare the equilibria from two common agency games: a firm-reporting game and a government-reporting game. Our analysis reveals three types of results. First, the asymmetric information creates new and important incentive constraints. Second, in the firm-reporting game, the informed government can influence the equilibrium incentives of the uninformed government to engage in rent extraction to the extent that the socially less desirable firm type faces efficient taxes while the socially more desirable type faces inefficient taxes. Third, despite the fact that the uninformed government is internalizing the impact of its taxes on the informed government in the government-reporting game, the most efficient equilibrium of the government-reporting game is equivalent to the efficient pooling equilibrium of the firm-reporting game.

Competition between asymmetrically informed principals

This paper derives the set of equilibria for common agency games in which the principals compete in piece rates and lump sum payments and one principal has incomplete information about the agent's preferences. We show that the uninformed principal's expected payoff function is discontinuous with respect to the identity of the marginal agent type. This discontinuity is shown to support an open set of equilibria. For games in which the first-best equilibrium strategies are measurable with respect to the uninformed principal's information partition, this result implies the existence of an open set of Pareto inefficient equilibria.