Incentive Mechanism Design for Systems with Many Agents: A Multiscale Decision Theory Approach

Incentives are an effective mechanism to align the interests of decision-makers. For example, employers use incentives to motivate their employees to take actions that benefit both the employers and the employees. Incentives also play a role in the interaction between firms, for example in a supply chain network. The prevalent approach to analyzing interactions between decision-makers is through principal-agent models. Due to mathematical intractability, the majority of these models are restricted to the interaction between two decision-makers. However, modern organizations have many decision-makers that interact with each other in a network. Therefore, effective incentive mechanisms for systems with many decision-makers (agents) must account for the numerous network interdependencies. The objective of this dissertation is to design incentive mechanisms for systems with many agents, with a focus on teams and multi-firm networks. Methodologically, our approach applies and builds upon multiscale decision theory (MSDT). MSDT can effectively and efficiently model the interdependencies between decision-makers and their optimal response to incentives. This dissertation consists of three parts. The first part focuses on incentives in teams, where multiple subordinates work under a single supervisor. The contribution of the team model to MSDT is the introduction of continuous decision variables; prior MSDT models have only used discrete decision variables. In the second and third part of this dissertation, we analyze a network of collaborating firms in a systems engineering project and focus on verification decisions. We introduce a belief-based model, which is a novel approach for both MSDT and verification modeling in systems engineering. Using MSDT, we determine how incentives can be used by a contractor to motivate a subcontractor to verify its design when the subcontractor prefers not to do so. We extend this two-firm model to a general multi-firm network model for verification coordination and incentivization. This firm network resembles the inter-firm collaboration present in most large-scale system engineering projects. Through better aligned verification activities, system-wide verification costs decrease, while the reliability of the final system improves.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Industrial and Systems Engineering

Department dc:contributor.department

Industrial and Systems Engineering

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

2018

Author dc:creator

• Kulkarni, Aditya Umesh

Chair dc:contributor.committeechair

• Wernz, Christian

Committee members dc:contributor.committeemember

• Bish, Ebru K.
• Fraticelli, Barbara M. P.
• Koelling, C. Patrick
• Salado Diez, Alejandro

• Incentives
• multiscale decision theory
• systems engineering
• organizations

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

vt_gsexam:15981

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/94550