Common Agency with Informed Principals: an Economics Lecture

The provision of public goods under asymmetric information has generally been viewed as a mechanism design problem under the aegis of an uninformed mediator. This paper focuses on institutional contexts where no such mediator is available. Contributors privately informed on their willingness to pay non-cooperatively offer contributions to an agent who produces the public good on their behalf. This institutional setting is thus viewed as a common agency game with privately informed principals competing through contract offers. Instead of reducing their marginal contributions to free-ride on others’ contributions, principals do so to screen the agent’s endogenous information on what he has learned from observing other principals’ offers. There may exist multiple equilibria of such game, all of them being ex post inefficient. The equilibrium correspondence and its properties are studied in the case of small asymmetric information where equilibria are interim-efficient. Beyond that case of a small asymmetric information, equilibria may not be interimefficient.