Incentive schemes with multiple agents and bankruptcy constraints

We explore the effects of bankruptcy constraints on incentive schemes when two risk-neutral agents operate in correlated environments. Our focus is on the subgame equilibrium in which each agent is induced via a direct mechanism to truthfully reveal his private information as a Nash response to truth-telling by his counterpart. We identify a class of examples in which, in contrast to the case where the agents are risk-averse, the Nash constraints induce a subgame dominant strategy equilibrium. Thus implementation via direct mechanisms is feasible for this class. More generally, however, the truth-telling Nash equilibrium may be subgame dominated, so the question of implementation via direct mechanisms remains a delicate one.