Public Contracting in Delegated Agency Games

This paper studies games of delegated common agency under asymmetric information. Using tools from non-smooth analysis and control, we derive best responses and equilibria under weak conditions on equilibrium schedules. Inefficiencies in equilibrium arise from two sources: inefficient contracting by a given coalition of active principals and inefficient participation (insufficient activity) by principals. Particular attention is given to the continuity of the equilibrium allocation which is directly related to the mode of competition among the principals. Continuous allocations arise when competition is soft and principals have overlapping activity sets in the type space. Discontinuities exist precisely when “head-to-head” competition occurs and principals battle for exclusive relationships. These findings are illustrated by means of two examples of independent economic interest: a game of voluntary contributions for a public good and a lobbying game between polarized interest groups attempting to influence an agent’s decision.