Three connected problems: principal with multiple agents in cooperation, Principal--Agent with Mckean--Vlasov dynamics and multitask Principal--Agent

TL;DR

This paper explores three interconnected Principal--Agent problems involving multiple agents, cooperation, and McKean--Vlasov dynamics, providing convergence results and methods for constructing approximately optimal contracts in large-agent settings.

Contribution

It establishes the connection between multi-agent cooperation, McKean--Vlasov dynamics, and multitask Principal--Agent problems, offering new methods for contract design in large-agent limits.

Findings

Principal's value converges to a McKean--Vlasov control problem as agents increase.

Constructive method for approximately optimal contracts in multi-agent cooperation.

Connection between multi-agent, McKean--Vlasov, and multitask Principal--Agent problems.

Abstract

In this paper, we address three Principal--Agent problems in a moral hazard context and show that they are connected. We start by studying the problem of Principal with multiple Agents in cooperation. The term cooperation is manifested here by the fact that the agents optimize their criteria through Pareto equilibria. We show that as the number of agents tends to infinity, the principal's value function converges to the value function of a McKean--Vlasov control problem. Using the solution to this McKean--Vlasov control problem, we derive a constructive method for obtaining approximately optimal contracts for the principal's problem with multiple agents in cooperation. In a second step, we show that the problem of Principal with multiple Agents turns out to also converge, when the number of agents goes to infinity, towards a new Principal--Agent problem which is the Principal--Agent problem with Mckean--Vlasov dynamics. This is a Principal--Agent problem where the agent--controlled production follows a Mckean-Vlasov dynamics and the contract can depend of the distribution of the production. The value function of the principal in this setting is equivalent to that of the same McKean--Vlasov control problem from the multi--agent scenario. Furthermore, we show that an optimal contract can be constructed from the solution to this McKean--Vlasov control problem. We conclude by discussing, in a simple example, the connection of these problems with the multitask Principal--Agent problem which is a situation when a principal delegates multiple tasks that can be correlated to a single agent.