A control-theoretic view on incentives

The idea of declaring a reward (punishment) for a decision maker according to his particular choice of action in order to induce certain "desired" behavior on the part of the decision maker is known as incentive (threat). This practice is age old. However, only in recent years have the notions been formalized. In the development of a control-theoretic view on incentives, we first investigate the deterministic version of the incentive problem. This reveals the basic simple idea behind the problem. It also illustrates the different possibilities introduced by the presence of dynamics and multi-follower nature of the problem. This is followed by two variants of the stochastic version of the problem where we concentrate on the role of uncertainties. Relationship to economic literature is also discussed.