Information structure, Stackelberg games, and incentive controllability

Abstract

Recently there has been considerable activity in the area of deterministic closed-loop Stackelberg games. It turns out that these results are closely related to various incentive problems and pricing problems in economics. We propose in this paper a unified treatment of these problems from the viewpoint of the information structure of a general two-person nonzero-sum game. This treatment lays bare the underlying ideas and permits easy extensions to stochastic cases. Single stage, linear-quadratic-Gaussian Stackelberg problems are then examined in detail. Examples from electricity pricing and organizational design are also discussed as illustrations of this general approach.