Games played through agents in the laboratory — a test of Prat & Rustichini's model

From the regulation of sports to lawmaking in parliament, in many situations one group of people (“agents”) make decisions that affect the payoffs of others (“principals”) who may offer action-contingent transfers in order to sway the agents' decisions. Prat and Rustichini (2003) characterize pure-strategy equilibria of such Games Played Through Agents. Specifically, they predict the equilibrium outcome in pure strategies to be efficient. We test the theory in a series of experimental treatments with human principals and computerized agents. The theory predicts remarkably well which actions and outcomes are implemented but subjects' transfer offers deviate systematically from equilibrium. We show how quantal response equilibrium accounts for the deviations and test its predictions out of sample. Our results show that quantal response equilibrium is particularly well suited for explaining behavior in such games

Innovation Contests with Entry Auction

We consider procurement of an innovation from heterogeneous sellers. Innovations are random but depend on unobservable effort and private information. We compare two procurement mechanisms where potential sellers first bid in an auction for admission to an innovation contest. After the contest, an innovation is procured employing either a fixed prize or a first-price auction. We characterize Bayesian Nash equilibria such that both mechanisms are payoff-equivalent and induce the same efforts and innovations. In these equilibria, signaling in the entry auction does not occur since contestants play a simple strategy that does not depend on rivals' private information