A Note on the Dynamics of Incentive Contracts

Laffont and Tirole [3] show that when the uncertainty about the agent's ability is small, the equilibrium must involve a large amount of pooling, but it is not necessary to be a partition equilibrium. They construct a nonpartition continuation equilibrium for a given first-period menu of contracts and conjecture that this continuation equilibrium need not be suboptimal for the whole game under small uncertainty. We show that, irrespective of the amount of uncertainty, this nonpartition continuation equilibrium generates a smaller payoff for the principal than a different menu of contracts with a partition continuation equilibrium. In this sense, Laffont and Tirole's menu of contracts, giving rise to a nonpartition continuation equilibrium, is not optimal. An intuition behind this result is provided that may shed some light on the problem of dynamic contracting without commitment.Incentive Contracts; Dynamic Contracting; Commitment; Partition Equilibrium; Ratchet Effect; Bunching

Collaborative Honeypot Defense in UAV Networks: A Learning-Based Game Approach

The proliferation of unmanned aerial vehicles (UAVs) opens up new opportunities for on-demand service provisioning anywhere and anytime, but also exposes UAVs to a variety of cyber threats. Low/medium interaction honeypots offer a promising lightweight defense for actively protecting mobile Internet of things, particularly UAV networks. While previous research has primarily focused on honeypot system design and attack pattern recognition, the incentive issue for motivating UAV's participation (e.g., sharing trapped attack data in honeypots) to collaboratively resist distributed and sophisticated attacks remains unexplored. This paper proposes a novel game-theoretical collaborative defense approach to address optimal, fair, and feasible incentive design, in the presence of network dynamics and UAVs' multi-dimensional private information (e.g., valid defense data (VDD) volume, communication delay, and UAV cost). Specifically, we first develop a honeypot game between UAVs and the network operator under both partial and complete information asymmetry scenarios. The optimal VDD-reward contract design problem with partial information asymmetry is then solved using a contract-theoretic approach that ensures budget feasibility, truthfulness, fairness, and computational efficiency. In addition, under complete information asymmetry, we devise a distributed reinforcement learning algorithm to dynamically design optimal contracts for distinct types of UAVs in the time-varying UAV network. Extensive simulations demonstrate that the proposed scheme can motivate UAV's cooperation in VDD sharing and improve defensive effectiveness, compared with conventional schemes.Comment: Accepted Aug. 28, 2023 by IEEE Transactions on Information Forensics & Security. arXiv admin note: text overlap with arXiv:2209.1381

The Evolution of Social Contracts

Influential thinkers such as Young, Sugden, Binmore, and Skyrms have developed game-theoretic accounts of the emergence, persistence and evolution of social contracts. Social contracts are sets of commonly understood rules that govern cooperative social interaction within societies. These naturalistic accounts provide us with valuable and important insights into the foundations of human societies. However, current naturalistic theories focus mainly on how social contracts solve coordination problems in which the interests of the individual participants are aligned, not competition problems in which individual interests compete with group interests. In response, I set out to build on those theories and provide a comprehensive naturalistic account of the emergence, persistence and evolution of social contracts. My central claim is that social contracts have culturally evolved to solve cooperation problems, which include both coordination and competition problems. I argue that solutions to coordination problems emerge from “within-group” dynamics, while solutions to competition problems result largely from “between-group” dynamics

Incentives in competitive search equilibrium

This paper analyses the interaction between internal agency problems within firms and external search frictions when workers have private information. We show that the allocation of resources is determined by a modified Hosios Rule. We then analyze the effect of changes in the macro economic variables on the wage contract and the unemployment rate. We find that private information may increase the responsiveness of the unemployment rate to changes in productivity. The incentive power of the wage contracts is positively related to high productivity, low unemployment benefits and high search frictions

The theory of incentives applied to the transport sector

Building upon Iossa and Martimort (2008), we study the main incentive issues and the form of optimal contracts for Public Private Partnerships (PPPs) in transports. We present a basic model of procurement in a multitask environment in which a risk-averse firm chooses unobservable efforts in infrastructure and service quality. We begin by analyzing the effect on incentives and risk transfer of bundling building and operation into a single contract. We consider the factors that affect the optimal allocation of demand risk and their implications for the choice of contract length. We discuss the dynamics of PPP contracts and how the risk of regulatory opportunism affects contract design and incentives

Institutions and Contract Enforcement

We provide evidence on how two important types of institutions – dismissal barriers, and bonus pay – affect contract enforcement behavior in a market with incomplete contracts and repeated interactions. Dismissal barriers are shown to have a strong negative impact on worker performance, and market efficiency, by interfering with firms' use of firing threat as an incentive device. Dismissal barriers also distort the dynamics of worker effort levels over time, cause firms to rely more on the spot market for labor, and create a distribution of relationship lengths in the market that is more extreme, with more very short and more very long relationships. The introduction of a bonus pay option dramatically changes the market outcome. Firms are observed to substitute bonus pay for threat of firing as an incentive device, almost entirely offsetting the negative incentive and efficiency effects of dismissal barriers. Nevertheless, contract enforcement behavior remains fundamentally changed, because the option to pay bonuses causes firms to rely less on long-term relationships. Our results show that market outcomes are the result of a complex interplay between contract enforcement policies and the institutions in which they are embedded