Abstract
We study a simple principal-agent game and show how the linear wage contract can be obtained by a three-phase adjustment process. The first two processes result in an incentive compatible Pareto optimal outcome and the third process takes care of the agent’s individual rationality. We also discuss a negotiation process to achieve this outcome and give the wage contract an interpretation in terms of incentive equilibrium. This concept has recently been an active research topic in dynamic games and management science studies.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Bagar, T. and Selbuz, H. (1979). Closed-loop Stackelberg strategies with applications in the optimal control of multilevel systems. IEEE Transactions on Automatic Control, AC-24(2):166–179.
Cournot, A. (1838). Recherches sur les principes mathématiques de la théorie des richesses. English edition: Researches into the Mathematical Principles of the Theory of Wealth, ed. N. Bacon (Macmillan, 1897).
Ehtamo, H. and Hämäläinen, R.P. (1989). Incentive Strategies and Equilibria for Dynamic Games with Delayed Information. Journal of Optimization Theory and Applications, 63(3):355–370.
Ehtamo, H. and Hämäläinen, R.P. (1993). A Cooperative Incentive Equilibrium for a Resource Management Problem. Journal of Economic Dynamics and Control, 17:695–678.
Ehtamo H. and Hämäläinen, R.P. (1995). Credibility of Linear Equilibrium Strategies in a Discrete Time Fishery Management Game. Group Decision and Negotiation, 4:27–37.
Ehtamo, H., Hämäläinen, R.P., Heiskanen, P., Teich, J., Verkama, M. and Zionts, S. (1999). Generating Pareto Solutions in a Two Party Setting: Constraint Proposal Methods. Management Science, 45(12):1697–1709.
Ehtamo, H., Kitti, M. and Hämäläinen, R.P. (2002). Computation of incentive Stackelberg solutions under incomplete information. Manuscript, Systems Analysis Laboratory, Helsinki University of Technology.
Fudenberg, D. and Levine, K.D. (1999). The Theory of Learning in Games. The MIT Press, Massachusetts.
Fudenberg, D. and Tirole, J. (1993). Game Theory. The MIT Press, Massachusetts.
Groves, T. (1973). Incentives in teams Econometrica,41:617–631.
Groves, T. and Ledyard J.O. (1987). “Incentive compatibility since 19x2”, in Information,Incentives, and Economic Mechanisms: Essays in Honor of Leonid Hurwicz, Groves, T., Radner, R., and Reiter S., Eds. Minneapolis, MN: Univ. of Minnesota Press.
Groves, T. and Loeb M. (1979). Incentives in a divisionalized firm. Management Science, 25:221–230.
Hämäläinen, R.P., Mäntysaari, J., Ruusunen J. and Pineau, P-O. (2000). Cooperative consumers in a deregulated electricity market s- Dynamic consumption strategies and price coordination. Energy- The International Journal, 25:857–875.
Hämäläinen, R.P., Ruusunen J., Kaitala V. (1990). Cartels and Dynamic Contracts in Sharefishing. Journal of Environmental Economics and Management, 19:175–192.
Heiskanen, P., Ehtamo, H., Hämäläinen, R.P. (2001). Constraint Proposal Method for Computing Pareto Solutions in Multi-Party Negotiations. European Journal of Operational Research, 133(1):44–61.
Ho, Y-C., Luh, P.B. and Olsder, G.J. (1982). A Control-theoretic View on Incentives. Automatica, 18(2):167–179.
Jorgensen, S. and Zaccour G. (2001). Incentive equilibrium strategies and welfare allocation in a dynamic game of pollution control. Automatica, 37:29–36.
Jorgensen, S. and Zaccour G. (2002). Channel Coordination over Time: Incentive Strategies and Profit Allocation. Journal of Economic Dynamics and Control. Forthcoming.
Kitti, M. (2000). Computation of Incentive Stackelberg Solutions. Master’s thesis, Systems Analysis Laboratory, Helsinki University of Technology.
Osborne, D.K. (1976). Cartel Problems. American Economic Review, 66(5):835–844.
Rasmusen, E. (1989). Games and Information. Blackwell.
Salman, M.A. and Cruz, J.B. (1981). An Incentive Model of Duopoly with Government Coordination. Automatica,17(6):821–829.
Teich, J.E., Wallenius, H., Kuula M. and Zionts S. (1995). A decision support approach for negotiation with an application to agricultural income policy negotiations. European Journal of Operational Research, 81:76–87.
Tolwinski, B. (1981). Closed-loop Stackelberg solution to multistage linear-quadratic game. Journal of Optimization Theory and Applications, 34:485–501.
Verkama, M. and Ehtamo, H. and Hämäläinen, R.P. (1996). Distributed Computation of Pareto Solutions in N-Player Games. Mathematical Programming, 74:29–45.
Zheng, Y-P. and Bagar, T. (1982). Existence and Derivation of Optimal Affine Incentive Schemes for Stackelberg Games with Partial Information: a Geometric Approach. International Journal of Control, 35(6):997–1011.
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2002 Springer Science+Business Media New York
About this chapter
Cite this chapter
Ehtamo, H., Kitti, M., Hämäläinen, R.P. (2002). Recent Studies on Incentive Design Problems in Game Theory and Management Science. In: Zaccour, G. (eds) Optimal Control and Differential Games. Advances in Computational Management Science, vol 5. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-1047-5_8
Download citation
DOI: https://doi.org/10.1007/978-1-4615-1047-5_8
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4613-5368-3
Online ISBN: 978-1-4615-1047-5
eBook Packages: Springer Book Archive