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arXiv · 2105.14998

Incomplete Information VCG Contracts for Common Agency

Tal Alon·Ron Lavi·Elisheva S. Shamash·Inbal Talgam-Cohen
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Abstract

We study contract design for welfare maximization in the well known "common agency" model of [Bernheim and Whinston, 1986]. This model combines the challenges of coordinating multiple principals with the fundamental challenge of contract design: that principals have incomplete information of the agent's choice of action. Motivated by the significant social inefficiency of standard contracts for such settings (which we formally quantify using a price of anarchy/stability analysis), we investigate whether and how a recent toolbox developed for the first set of challenges under a complete-information assumption, VCG contracts [Lavi and Shamash, 2019], can be extended to incomplete information. We define and characterize the class of "incomplete information VCG contracts (IIVCG)", and show it is the unique class guaranteeing truthfulness of the principals and welfare maximization by the agent. Our results reveal an inherent tradeoff between two important properties required to ensure participation in the contract: individual rationality (for the principals) and limited liability (for the agent). We design a polynomial-time algorithm for determining whether a setting has an IIVCG contract with both properties. As our main result we design a polynomial-time "algorithmic IIVCG" contract: given valuation reports from the principals it returns, if possible for the setting, a payment scheme for the agent that constitutes an IIVCG contract with all desired properties. We also give a sufficient graph-theoretic condition on the population of principals that ensures the existence of such an IIVCG contract.

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Tal Alon, Ron Lavi, Elisheva S. Shamash, Inbal Talgam-Cohen. 2021-05-31. Incomplete Information VCG Contracts for Common Agency. https://arxiv.org/abs/2105.14998

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