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Public Contracting in Delegated Agency Games ( preliminary )

This paper studies games of public delegated common agency under asymmetric information. Using tools from non-smooth analysis and optimal control, we derive best responses and equilibria under weak conditions on schedules. At equilibrium, inefficiencies 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 and the characterization of the principals’ activity sets. Existence of such equilibria is shown when principals have linear preferences. Our findings are illustrated by means of two examples of independent economic interest: a lobbying game between conflicting interest groups influencing the policy chosen by a political-decision maker and a game of voluntary contributions for a public good by congruent principals. Those examples illustrate that equilibrium distortions depend on whether principals have conflicting or congruent preferences.