Econometrica: May, 1991, Volume 59, Issue 3

Incentives to Help in Multi-Agent Situations

https://doi.org/0012-9682(199105)59:3<611:ITHIMS>2.0.CO;2-X
p. 611-636

Hideshi Itoh

This paper concerns moral hazard problems in multi-agent situations where cooperation is an issue. Each agent chooses his own effort, which improves stochastically the outcome of his own task. He also chooses the amount of "help" to extend to other agents, which improves their performance. By selecting appropriate compensation schemes, the principal can design a task structure: the principal may prefer an unambiguous division of labor, where each agent specializes in his own task; or the principal may prefer teamwork where each agent is motivated to help other agents. We provide a sufficient condition for teamwork to be optimal, based on its incentive effects. We also show a nonconvexity of the optimal task structure: The principal wants either an unambiguous division of labor or a substantial teamwork.