Working Paper: CEPR ID: DP13891
Authors: Kfir Eliaz; Kareen Rozen; Geoffroy de Clippel; Daniel Fershtman
Abstract: Each period, a principal must assign one of two agents to some task. Profit is stochastically higher when the agent is qualified for the task. The principal cannot observe qualification. Her only decision is which of the two agents to assign, if any, given the public history of selections and profits. She cannot commit to any rule. While she maximizes expected discounted profits, each agent maximizes his expected discounted selection probabilities. We fully characterize when the principal's first-best payoff is attainable in equilibrium, and identify a simple strategy profile achieving this first-best whenever feasible. We propose a new refinement for dynamic mechanisms (without transfers) where the designer is a player, under which we show the principal's next-best, when the first-best is unachievable, is the one-shot Nash. We show how our analysis extends to variations on the game accommodating more agents, caring about one's own performance, cheap talk and losses.
Keywords: dynamic allocation; mechanism design without transfers; mechanism design without commitment
JEL Codes: D82; D86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| principal selects the most qualified agent available in each period (D82) | principal achieves first-best outcome (D61) |
| agents' abilities summing to a sufficient threshold (C78) | principal can select a qualified agent (L85) |
| MLR strategy enables principal to achieve first-best payoff (C71) | principal achieves first-best outcome (D61) |
| MLR strategy remains effective even in the presence of asymmetries among agents (D82) | principal achieves first-best outcome (D61) |
| first-best unattainable (H21) | principal's next-best outcome is one-shot Nash equilibrium (C72) |
| MLR strategy can be generalized to maintain principal's ability to achieve first-best (E61) | principal achieves first-best outcome (D61) |
| MLR strategy achieves first-best outcome whenever feasible (D61) | principal achieves first-best outcome (D61) |