Incentive compatible resource allocation in concurrent design

Abstract

This article presents an approach that a manager can use to allocate resources needed to design a system among the members of a concurrent design team. The system being designed is assumed to be composed of a number of subsystems, each designed by a different engineer. These engineers possess private information about the performance of their subsystem as a function of the design resources that they are allocated. This article shows how the manager of such a concurrent design project can induce rational self-interested engineers to reveal truthfully their private subsystem performance functions. This is accomplished through an incentive contract that ties each engineer’s pay to the contribution of their subsystem to the performance of the overall system. The approach builds from a Vickrey–Clarke–Groves mechanism to achieve, as an ex-post Nash equilibrium, truthful reporting of private subsystem performance functions by risk-neutral agents.

Keywords:

• Incentive compatible
• Resource allocation
• Concurrent design
• Game theory

Acknowledgements

This work was partially funded by a National Defense Science and Engineering Graduate Fellowship, and this support is gratefully acknowledged. I would also like to thank Hung-po Chao, Robin Dillon, Elisabeth Paté-Cornell, Jan Benjamin Pietzsch, Russ Garber and Ross Shachter for helpful comments on early versions of this article.

Notes

^†A resource allocation mechanism is said to be incentive compatible if it induces honest reporting from the agents and then uses this reporting as the basis for the resource allocation. The allocation is then said to be an incentive-compatible resource allocation.

^†For a situation with a single resource, r _i would be a positive real number. For a situation with K resources, r _i would be a 1×K vector of positive real numbers.

^†As will become apparent in section 4.2, the particular value of C chosen does not change the incentive-compatible nature of the mechanism presented in this section. If C is set to a value other than 0, it signifies a monetary transfer between the manager and the engineers beyond that necessary for the incentive contract. This could be used to handle a non-zero reservation utility on the part of the engineers.

^†This simple example corresponds to a problem in which the product consists of three components in parallel and the performance measure of interest is the reliability, the probability that the overall system functions at a critical point in time.

^†The optimal solution to the problem with the performance functions given in figure 1 is to allocate two units of the resource to each of the subsystems.

Additional information

Notes on contributors

Seth D. Guikema

Email: [email protected]