Working Paper: CEPR ID: DP14725
Authors: Daniel Garrett
Abstract: In the context of a canonical agency model, we study the payoff implications of introducing optimally structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does know that the principal knows them. We provide, in particular, tight bounds on the principal's expected benefit from optimal incentive contracting across feasible values of the agent's expected rents. We thus show how economically relevant predictions can be made robustly given ignorance of a key primitive.
Keywords: mechanism design; robustness; procurement
JEL Codes: D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimally structured incentives (D40) | principal's expected benefits (H43) |
| agent's expected rents (R21) | principal's guaranteed gains from incentives (M52) |
| distribution of innate costs (D39) | principal's expected benefits (H43) |
| expected rents of the agent (R21) | principal's expected payoffs (D81) |