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On the complexity of repeated principal agent games

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Summary

We examine an infinitely repeated principal agent game without discounting (Radner [1985]), in which the agent may engage in multiple projects. We focus on “linear” strategies that summarize each history into a linear function of public outcomes, and select an action according to a single threshold rule. We claim that linear strategies significantly simplify the computation needed to make strategic decisions following each history. Despite the simplicity of linear strategies, we can virtually recover the folk theorem. For any individually rational payoff vector in the interior of the set of feasible expected payoff vectors, there exists a pair of linear strategies that form a Nash equilibrium supporting the target payoff. The equilibrium strategies and the equilibrium payoff vectors form a globally stable solution (Smale [1980]).

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Authors and Affiliations

  1. Department of Economics, University of Chicago, 1126 E. 59th Street, 60637, Chicago, IL, USA

    In-Koo Cho

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  1. In-Koo Cho
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I would like to thank Andrew Atkeson and the anonymous referee for helpful comments. John Curran and Hao Li provided excellent research assistance. Financial support from the National Science Foundation, the Alfred P. Sloan Foundation and the Division of Social Sciences at the University of Chicago is gratefully acknowledged.

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Cho, IK. On the complexity of repeated principal agent games. Econ Theory 7, 1–17 (1996). https://doi.org/10.1007/BF01212179

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  • DOI: https://doi.org/10.1007/BF01212179

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