Secret Contracts For Efficient Partnerships
Source: University of Minnesota
By allocating different information to team members, secret contracts can provide better incentives to perform with an intuitive organizational design. For instance, they may help to monitor monitors, and appoint secret principals. More generally, secret contracts highlight a rich duality between detection and enforcement with linear transfers. On the one hand, every disobedient deviation must be detectable to enforce an outcome, but different behavior may be used to detect different deviations. On the other, every disobedient deviation must be attributable, i.e., some player can be identified as innocent after the deviation, to provide incentives with budget balance.