🤖 AI Summary
This paper studies a combinatorial principal-agent problem: a principal must incentivize an agent to select a subset of unobservable actions—each incurring cost—to complete a high-cost task, where success probability exhibits diminishing returns. We introduce the first combinatorial contract model capturing structural relationships between action subsets and success probability. Our theoretical contributions are threefold: (i) gross substitutes is a tight condition for polynomial-time computation of optimal contracts; under submodularity, the problem is NP-hard; (ii) we establish a deep connection to combinatorial auctions; (iii) we design a polynomial-time algorithm based on value queries and prove that linear contracts are robustly optimal under first-moment constraints on the agent’s type distribution. Collectively, our results provide both computational foundations and fundamental complexity boundaries for high-dimensional, structured incentive design.
📝 Abstract
We introduce a new model of combinatorial contracts in which a principal delegates the execution of a costly task to an agent. To complete the task, the agent can take any subset of a given set of unobservable actions, each of which has an associated cost. The cost of a set of actions is the sum of the costs of the individual actions, and the principal's reward as a function of the chosen actions satisfies some form of diminishing returns. The principal incentivizes the agents through a contract, based on the observed outcome. Our main results are for the case where the task delegated to the agent is a project, which can be successful or not. We show that if the success probability as a function of the set of actions is gross substitutes, then an optimal contract can be computed with polynomially many value queries, whereas if it is submodular, the optimal contract is NP-hard. All our results extend to linear contracts for higher-dimensional outcome spaces, which we show to be robustly optimal given first moment constraints. Our analysis uncovers a new property of gross substitutes functions, and reveals many interesting connections between combinatorial contracts and combinatorial auctions, where gross substitutes is known to be the frontier for efficient computation.
