Scope
The scope of the paper is to explore contract theory principles and their applications in designing incentive-based mechanisms for wireless networks.
Summary
The article of Zhang et al. deals with the main principles of contract theory and with important related issues, as well with applications thereof to the design of incentives-based mechanisms for wireless networks. In general economic terms, a contract is offered by an employer to an employee as a means to incentivise her to perform a task in a way that is optimal to the payoff of the employer. However, the process should be individually-rational; that is, it should be beneficial for the employee too to sign the contract. Usually the employer is not fully informed about the characteristics of the employee. Thus, the employee can take advantage (to her own benefit) of the choice of characteristics of the contract. This is the so-called “adverse selection” problem. In fact, the choice of contract made by the employee (among the options offered) can be considered as optimal for her, given her own private information. This optimal choice also provides (possibly indirectly) additional information to the employer on the employee’s unknown characteristics; this is referred to as “revelation principle”.
Finally, if the effort of the employee after signing the contract is not fully observable, it is possibly preferable for her to exert less effort than that foreseen by the employer, which amounts to the so-called “moral hazard”. The authors subsequently present certain contract taxonomies: bi-lateral (one-to-one) vs multi-lateral contracts (that is, with one employer and multiple employees), and uni-dimensional vs multi-dimensional (that is, with multiple characteristics of the employee being evaluated in the contract). Contracts involve rewards, the right specification of which depends on the type of the contract. For example, the reward can be based on either the absolute performance (either of the individual employee or of a group), or on the relative performance of the employee (e.g. on its ranking) if multiple employees are involved etc.
The paper also presents certain examples of applications of the above principles to wireless networks, such as the following cases: sharing of spectrum in cognitive radio networks (where the primary user sets the relevant contract), dealing with moral hazard in mobile crowdsourcing, dealing with the combination of adverse selection and moral hazard in spectrum trading etc.
Relevance for EXIGENCE
The principles and concepts discussed in Zhang et al. 2017 apply to a certain extent to the setting of EXIGENCE, depending also on the Use Case. For example, in Use Case 3 (please see Chapter 7), the Aggregator can offer a contract to all other stakeholders involved, rewarding them on the basis of the total flexibility attained. Also, information asymmetries apply when multiple independent interconnected domains are to achieve a common goal, although the use of the proper contract, as well as collecting the proper measurements credibly per domain, can mitigate them.
- Zhang, M. Pan, L. Song, Z. Dawy, and Z. Han, “A Survey of Contract Theory-Based Incentive Mechanism Design in Wireless Networks,” IEEE Wireless Communications, vol. 24, no. 3, pp. 80–85, Jun. 2017.
