A dual characterization of incentive efficiency.
We show that incentive efficient allocations in economies with adverse selection and moral hazard problems can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete characterization of the optima. Our dual analysis identifies welfare effect...
| Published in: | Journal of Economic Theory Vol. 112; no. 1; pp. 1 - 35 |
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| Format: | Article |
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Academic Press Inc.
September 2003
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| Online Access: | View this record in EBSCOhost |
| Summary: | We show that incentive efficient allocations in economies with adverse selection and moral hazard problems can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete characterization of the optima. Our dual analysis identifies welfare effects associated with the incentives of the agents to truthfully reveal their private information. Because these welfare effects may generate non-convexities, incentive efficient allocations may involve randomization. Other properties of incentive efficient allocations are also derived. Copyright (c) 2003 Elsevier (USA) |
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