1. Coordination with Linear Equations
Adjustment of Affine Incentive with Fixed-Point Iteration
Mitri Kitti
Audience: engineering economists, optimization theorists

2. Introduction Classical incentive problems
Reward mechanisms, principal-agent games (Groves 1973)
Incentive compatibility problems, e.g., nonlinear pricing
Affine incentives for two-player dyn. games
Existence and applications (Ehtamo & Hämäläinen 1986, 1993,1995)
Adjustment and learning
Price adjustment (Arrow et al. 1959)
Naïve learning, Cournot adjustment (Cournot 1883)

3. Incentive problem Repeated incentive game The question
Coordinator (leader) gives an incentive
Agent (follower) reacts optimally
Incomplete information
The question
How to adjust an incentive according to observations such that the follower finally chooses leader’s optimum?

4. Ideas Parameterization of the problem
system of equations
Adjustment with fixed-point iteration
Convergence analysis
Continuous time adjustment

5. Plans
Mathematical analysis of two-player incentive game and adjustment (to JOTA)
Application of affine incentives in nonlinear pricing (JEDC)
Affine incentive design with several followers
application: reward mechanisms
Study of related coordination problems
constraint proposal methods
discrete time price adjustment (Econometrica)