Deals in the dark: multi-agent moral hazard with learning

• Grant number: 17/00298-0
• Support Opportunities: Scholarships in Brazil - Scientific Initiation
• Start date: June 01, 2017
• End date: December 31, 2017
• Field of knowledge: Applied Social Sciences - Economics - Economic Theory
• Principal Investigator: Gabriel de Abreu Madeira
• Grantee: Victor Bluhu da Annunciação
• Host Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil

Abstract

We shall create a linear programming algorithm to compute the optimal contracts in a multi-agent moral-hazard model with learning about the production process, full commitment, a finite horizon and no credit market. The principal and the agents have their priors about the technology and update them as history unfolds. Our main goal is to analyze how team size affects the optimal contract. We conjecture that we will find informational economies of scale and an argument for industrial concentration in the case of uncertainty in the production process. In addition, our model endogenously determines the optimal way of performing random experiments with N firms.