Robust Performance Evaluation of Independent and Identical Agents

Abstract

A principal provides nondiscriminatory incentives for independent and identical agents. The principal cannot observe the agents' actions, nor does she know the entire set of actions available to them. It is shown, very generally, that any worst-case optimal contract is nonaffine in performances. In addition, each agent's pay must depend on the performance of another. In the case of two agents and binary output, existence of a worst-case optimal contract is established and it is proven that any such contract exhibits joint performance evaluation -- each agent's pay is strictly increasing in the performance of the other. The analysis identifies a fundamentally new channel leading to the optimality of nonlinear team-based incentive pay.