ON MISREPRESENTATION-PROOF STRATEGIES IN INCENTIVE DESIGN-PROBLEMS

This paper investigates incentive design problems in hierarchical syst ems where the leader relies on information provided by the follower an d the follower may have motivation to misrepresent information. To dea l with incentive design problems in such a situation, the notion of mi srepresentation-proof optimal incentive strategy (MOIS) is proposed, w hich induces the follower to report true information to the leader and simultaneously to take actions in favour of the leader's interest. Ex istence conditions of MOIS are then obtained and two construction meth ods for such strategies are suggested.