Implementation without commitment in moral hazard environments

TL;DR

This paper introduces interdependent-choice equilibrium, a new solution concept for single-shot games that allows implementation of outcomes without repeated interactions or binding agreements, expanding the scope of feasible outcomes.

Contribution

It defines and characterizes interdependent-choice equilibrium, extending correlated equilibrium to include timing and observation of actions, applicable in one-shot settings.

Findings

Interdependent-choice equilibrium forms a nonempty, closed, convex polytope.

It characterizes all outcomes implementable without repetition or binding agreements.

Provides a new framework for understanding implementation in one-shot interactions.

Abstract

Interdependent-choice equilibrium is defined as an extension of correlated equilibrium in which the mediator is able to choose the timing of her signals, and observe the actions taken by the players. The set of interdependent-choice equilibria is a nonempty, closed and convex polytope. It characterizes all the outcomes that can be implemented in single shot interactions without repetition, side payments, binding contracts or any other form of delegation.