Combinatorial Contracts

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.

Authors

• Paul Dütting
• Tomer Ezra
• Michal Feldman
• Thomas Kesselheim

Keywords

• Computer science
• Costs
• Computational efficiency
• Task analysis
• Contracts
• Sum Of Costs
• Outcome Space
• Optimal Contract
• Cost Function
• Best Response
• Economic Role
• Mechanical Design
• Arbitrary Function
• Marginal Utility
• Moral Hazard
• Activation Of Subsets
• Utilization Of Agents
• Binary Case
• Contract Theory
• Contract Design
• Models For Binary Outcomes
• Unit Demand
• gross substitutes