Abstract

This paper studies a multiagent moral hazard setting. We resolve the tacit collusion problem that arises in our setting while employing a solution concept that makes less demanding behavioral assumptions than Nash. A simple mechanism is constructed that approximately implements the second-best solution in two rounds of iteratively removing strictly dominated strategies. Under our mechanism, the agents' best-reply correspondences are well defined, a small message space is employed, and the messages can be interpreted as divisional forecasts.

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Citation

Arya, A., and Jonathan Glover. "A Simple Forecasting Mechanism for Moral Hazard Settings." Journal of Economic Theory 66, no. 2 (August 1995): 507-521.

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