ME  Vol.1 No.1 , May 2010
Direct Mechanisms, Menus and Latent Contracts
Abstract: In common agency games, one cannot characterize all equilibria by considering only direct mechanisms. In an attempt to overcome this difficulty, Peters [1] and Martimort and Stole [2] identi?ed a class of indirect mechanisms (namely, menus) which are able to characterize every equilibrium. Unfortunately, menus are difficult to handle, and several methodologies have been proposed in the literature. Here, it is shown that, even if authors consider menus rather than simpler mechanisms, many equilibria described in the literature could have been characterized by direct incentive compatible mechanisms. Use of more sophisticated mechanisms was not necessary in these cases.
Cite this paper: nullG. Piaser, "Direct Mechanisms, Menus and Latent Contracts," Modern Economy, Vol. 1 No. 1, 2010, pp. 51-58. doi: 10.4236/me.2010.11005.

[1]   M. Peters, “Common Agency and the Revelation Principle,” Econometrica, Vol. 69, No. 5, September 2001, pp. 1349-1372.

[2]   D. Martimort and L. Stole, “The Revelation and Delegation Principles in Common Agency Games,” Econometrica, Vol. 70, No. 4, July 2002, pp. 1659-1673.

[3]   J.-J. Laffont and D. Martimort, “The Theory of Incentives,” Princeton University Press, Princeton, 2002.

[4]   P. Hammond, “Straightforward Individual Incentive Compatibility in Large Economies,” Review of Economic Studies, Vol. 46, No. 2, April 1979, pp. 263-282.

[5]   R. Guesnerie, “On Taxation and Incentives; Futher Remarks on the Limits to Redistribution,” Bonn Discussion Paper, 1981.

[6]   J.-C. Rochet, “Le contrôle des équations aux dérivées partielles issues de la théorie des incitations,” PhD thesis, Université Paris IX, 1986.

[7]   J.-J. Laffont and J. Tirole, “A Theory of Incentives in Procurement and Regulation,” MIT Press, Cambridge, 1993.

[8]   J. Peck, “A Note on Competing Mechanisms and the Revelation Principle,” Mimeo, Ohio State University, 1997.

[9]   M. Peters, “Negotiation and Take-It or Leave-It in Common Agency,” Journal of Economic Theory, Vol. 111, No. 1, July 2003, pp. 88-109.

[10]   M. Hellwig, “On Moral Hazard and Non-Price Equilibria in Competitive Insurance Markets,” Discussion Paper No. 109, Sonderforschungsbereich 21, Bonn, May 1983.

[11]   A. Bisin, P. Gottardi and D. Guaitoli, “A Note on the Convergence to Competitive Equilibria in Economies with Moral Hazard,” In: P. J. J. Herings, G. Van der Laan, and A. J. J. Talman, Eds., Theory of Markets, North Holland, 1999, pp. 229-246.

[12]   B. Biais and T. Mariotti, “Strategic Liquidity Supply and Security Design,” Review of Economic Studies, Vol. 72, No. 8, July 2005, pp. 615-649.

[13]   D. Martimort, “Exclusive Dealing, Common Agency and Multiprincipal Incentives Theory,” RAND Journal of Economics, Vol. 27, No. 1, Spring 1996, pp. 1-31.

[14]   B. Biais, D. Martimort and J.-C. Rochet, “Competing Mechanisms in a Common Value Environment,” Econo-metrica, Vol. 78, No. 4, July 2000, pp. 799-837.

[15]   G. Calzolari, “Incentive Regulation of Multinational Enterprises,” International Economic Review, Vol. 45, No. 1, February 2004, pp. 257-282.

[16]   J.-J. Laffont and J. Pouyet, “The Subsidiarity Bias in Regulation,” Journal of Public Economics, Vol. 88, No. 1, January 2004, pp. 255-283.

[17]   D. Martimort and L. Stole, “Contractual Externalities and Common Agency Equilibria,” Advances in Theoretical Economics, Vol. 3, No. 1, 2003. bejte/advances/Vol3/iss1/art4

[18]   F. Khalil, D. Martimort and B. Parigi, “Monitoring a Common Agent,” Journal of Economic Theory, Vol. 135, No. 1, July 2007, pp. 35-67.

[19]   T. Olsen and P. Osmundsen, “Multinationals, Regulatory Competition and Outside Options,” Mimeo, Norwegian School of Economics and Business Administration, 2003.

[20]   K. Diaw and J. Pouyet, “The Dilemma of Tax Competition: How (Not) to Attract (Inefficient) Frms?” CentER Discussion Paper No. 2004-68, 2004.

[21]   G. Calzolari and C. Scarpa, “Non-Intrinsic Common Agency,” ENI-FEEM Nota di lavoro 84.99, 2004. http://

[22]   D. Martimort, “Multi-Principaux Avec Anti-Selection,” Annales d’Economie et de Statistique, Vol. 28, No. 1, October 1992, pp. 1-37.