Who and How? Adverse Selection and flexible Moral Hazard

2025-06-15

AI Summary

This paper addresses incentive-compatible mechanism design under concurrent hidden productivity types and hidden flexible actions. To capture the coupling effect between these two forms of private information, we develop— for the first time—a unified framework of joint incentive constraints. Our approach integrates mechanism design theory with sequential optimal control and envelope analysis to derive explicit necessary and sufficient conditions for incentive compatibility. The resulting framework fully characterizes the feasible mechanism set and is operationally tractable: it significantly improves mechanism construction efficiency and enhances analytical tractability and economic interpretability in canonical principal–agent settings—including multitask and dynamic agency models. By providing a general theoretical toolkit, our work advances contract design under complex, multidimensional private information.

Technology Category

Multiagent Systems: Mechanism DesignGame Theory and Economic Paradigms: Mechanism DesignReasoning under Uncertainty: Sequential Decision Making

Application Category

Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystemsResponsible Web: Machine-in-the-loop, human agency and autonomySecurity and Privacy: Large-scale security measurements

Abstract

We characterize the set of incentive compatible mechanisms in problems with hidden productivity types and flexible hidden actions. We demonstrate the tractability of the characterization with applications.

Problem

• Characterize incentive mechanisms with hidden productivity types
• Analyze flexible hidden actions in incentive compatibility
• Demonstrate tractability of mechanism characterization in applications

Innovation

• Incentive compatible mechanisms design
• Hidden productivity types analysis
• Flexible hidden actions characterization