Designing Incentive Schemes Based on Intervention: The Case of Perfect Monitoring

Abstract: This paper studies a class of incentive schemes based on intervention, where there exists an intervention device that is able to monitor the actions of users and to take an action that affects the payoffs of users. We consider the case of perfect monitoring, where the intervention device can immediately observe the actions of users without errors. We also assume that there exist actions of the intervention device that are most and least preferred by all the users and the intervention device, regardless of the actions of users. We derive analytical results about the outcomes achievable with intervention, and illustrate our results with an example based on the Cournot model.