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Unique Implementation of Incentive Contracts with Many Agents

Review of Economic Studies 1988 55(4), 555
The author considers the problem of implementation when a principal hires many agents and is not able to monitor their actions. He distinguishes two cases: (1) when actions are mutually observable among agents; and (2) when actions are not observable. In (1), there is a mechanism in which th e first-best arises as a unique perfect equilibrium. In (2), there are typically multiple equilibria if the principal merely offers a set of optimal sharing rules. However, the author proves that the principal can use these optimal sharing rules as a starting point for a multistage mechanism that has a unique second-best perfect Bayesian e quilibrium. Copyright 1988 by The Review of Economic Studies Limited.