Joint Production in Teams (PDF)

Consider Holmström's moral hazard in teams problem when there are n agents, each agent i has an ai-dimensional strategy space and output is m-dimensional. We show that a compensation mechanism that satisfies budget balance, limited liability and implements an efficient allocation generically exists if and only if the sum of the dimensionalities of the strategies ai, divided by n-1, is lower than m. Moreover, under a weak additional condition, the equilibrium implemented by this mechanism is unique in the class of pure strategy Coalition-Proof equilibria.