Combinatorial Contracts

Paul Dutting, Tomer Ezra, Michal Feldman, Thomas Kesselheim

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

We introduce a new model of combinatorial contracts in which a principal delegates the execution of a costly task to an agent. To complete the task, the agent can take any subset of a given set of unobservable actions, each of which has an associated cost. The cost of a set of actions is the sum of the costs of the individual actions, and the principal's reward as a function of the chosen actions satisfies some form of diminishing returns. The principal incentivizes the agents through a contract, based on the observed outcome. Our main results are for the case where the task delegated to the agent is a project, which can be successful or not. We show that if the success probability as a function of the set of actions is gross substitutes, then an optimal contract can be computed with polynomially many value queries, whereas if it is submodular, the optimal contract is NP-hard. All our results extend to linear contracts for higher-dimensional outcome spaces, which we show to be robustly optimal given first moment constraints. Our analysis uncovers a new property of gross substitutes functions, and reveals many interesting connections between combinatorial contracts and combinatorial auctions, where gross substitutes is known to be the frontier for efficient computation.

Original languageEnglish
Title of host publicationProceedings - 2021 IEEE 62nd Annual Symposium on Foundations of Computer Science, FOCS 2021
PublisherIEEE Computer Society
Pages815-826
Number of pages12
ISBN (Electronic)9781665420556
DOIs
StatePublished - 2022
Event62nd IEEE Annual Symposium on Foundations of Computer Science, FOCS 2021 - Virtual, Online, United States
Duration: 7 Feb 202210 Feb 2022

Publication series

NameProceedings - Annual IEEE Symposium on Foundations of Computer Science, FOCS
Volume2022-February
ISSN (Print)0272-5428

Conference

Conference62nd IEEE Annual Symposium on Foundations of Computer Science, FOCS 2021
Country/TerritoryUnited States
CityVirtual, Online
Period7/02/2210/02/22

Keywords

  • contract theory
  • gross substitutes
  • moral hazard

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