Abstract / Description of output
When a principal hires two (or more) agents to work in a correlated environment, each agent's reward will depend on the other's performance. Unfortunately, with just the usual optimal (incentive-constrained) contracts being offered, the agents strictly prefer to play equilibrium strategies other than those desired by the principal; they “cheat.” However, the principal can use a more subtle contractual mechanism to stop them from cheating at no extra cost. This mechanism uses one agent to police the other, and exploits certain properties of the optimal contracts.
|Number of pages||18|
|Journal||Journal of Economic Theory|
|Publication status||Published - Dec 1988|