Optimal technology design

A-Tier
Journal: Journal of Economic Theory
Year: 2023
Volume: 209
Issue: C

Authors (4)

Garrett, Daniel F. (not in RePEc) Georgiadis, George (not in RePEc) Smolin, Alex (Toulouse School of Economics (...) Szentes, Balázs (not in RePEc)

Score contribution per author:

1.005 = (α=2.01 / 4 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

This paper considers a moral hazard model with agent limited liability. Prior to interacting with the principal, the agent designs the production technology, which is a specification of his cost of generating each output distribution. After observing the production technology, the principal offers a payment scheme and then the agent chooses a distribution over outputs. We show that there is an optimal design involving only binary distributions (i.e., the cost of any other distribution is prohibitively high), and we characterize the equilibrium technology defined on the binary distributions. Notably, the equilibrium payoff of both players is 1/e.

Technical Details

RePEc Handle
repec:eee:jetheo:v:209:y:2023:i:c:s0022053123000170
Journal Field
Theory
Author Count
4
Added to Database
2026-01-29