Participation Constraints in Adverse Selection Models

Jullien, Bruno

doi:10.1006/jeth.1999.2641

Cited by 351 publications

(306 citation statements)

References 20 publications

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“…Similarly, β(x, θ) can be viewed as the surplus from allocating quantity x to type θ, taking into account the effect on the rents of types below θ. 10 Conversely, if u(x, θ) + v(x, θ) is strictly concave in x and u xxθ = 0, as is commonly the case, then Assumption 2 holds. 11 To preclude bunching, q σ (resp.…”

Section: Assumption 2 Also Implies That U(x θ)+V(x θ)mentioning

confidence: 97%

“…Further examples of models violating Assumption 1 are presented and analyzed in Jullien [10]. 8 Note that Assumption 1 does not preclude optimal bunching.…”

Section: Assumptionsmentioning

confidence: 99%

“…10 Note, however, that q F B need not be increasing, as our assumptions impose no restriction on v xθ (x, θ). Consequently, the model may fail to be responsive (see Guesnerie and Laffont [9]).…”

Section: Assumption 2 Also Implies That U(x θ)+V(x θ)mentioning

confidence: 99%

“…Theorems 3 and 4 in Jullien [10] provide a complete characterization of the solution to the principal's problem under Assumption 2. Our analysis provides an alternative derivation 9 The value σ(x, θ) is the surplus achieved by allocating quantity x to type θ, taking into account the rents that must then be left to types higher than θ if this is to be incentive compatible.…”

Section: Assumption 2 Also Implies That U(x θ)+V(x θ)mentioning

confidence: 99%

“…In such cases, the standard analysis relies on control theory to characterize optimal decision functions. See Jullien [10] for a general exposition. This paper develops an alternative approach to optimal bunching.…”

Section: Introductionmentioning

confidence: 99%

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Optimal Bunching without Optimal Control

Nöldeke

Samuelson

2005

SSRN Journal

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Section: Assumption 2 Also Implies That U(x θ)+V(x θ)mentioning

confidence: 97%

“…Further examples of models violating Assumption 1 are presented and analyzed in Jullien [10]. 8 Note that Assumption 1 does not preclude optimal bunching.…”

Section: Assumptionsmentioning

confidence: 99%

Section: Assumption 2 Also Implies That U(x θ)+V(x θ)mentioning

confidence: 99%

Section: Assumption 2 Also Implies That U(x θ)+V(x θ)mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Optimal Bunching without Optimal Control

Nöldeke

Samuelson

2005

SSRN Journal

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Non‐smooth monotonicity constraints in optimal control problems: Some economic applications

Portal¹

2010

Optim Control Appl Methods

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This paper presents a theorem on necessary conditions for optimal control problems containing monotonicity constraints that bear on a joint function of the control variable, the state variable, and the time. These constraints are often found, under continuity and piecewise smoothness assumptions for the endogenous variables of the problem, in various economic fields that include monopoly regulation, non-uniform pricing, implicit contracts, and optimal taxation. After applying our theorem to a general incentive provision model, we show its usefulness in relaxing the standard continuity and smoothness assumptions, for the case of two screening problems among those that have received more attention in the literature. NON-SMOOTH MONOTONICITY CONSTRAINTS IN OPTIMAL CONTROL PROBLEMS 397differentiable. Among other reasons, if the function concerned is continuous and piecewise smooth one can express its monotonicity by imposing the constraint that its derivative becomes singlesigned, and then characterize the solution by relying on standard optimal control techniques. Nevertheless, the cost of such a procedure is a loss of generality for disregarding the solutions that do not present the supposed continuity and smoothness properties. This has been corroborated in Ruiz del Portal [7] by showing that the general results on optimal income taxation can be violated on ranges where the relevant variable is increasing and singular, failing thus to be smooth in a set of measure zero.It is well known on the other hand that, regarding a large number of incentive provision models, the natural feature of solutions is precisely that of discontinuous functions, or even discontinuous correspondences. This is the case, for instance, when the monotonicity constraint in the principalagent problem does not bind, whereas the participation constraint is binding on isolated points. The same happens when the solution to the optimal income tax problem is not uniquely determined, because the resulting tax-schedule overlaps an indifference curve for part of its length. * * In all these cases, the continuity assumption may thus turn out to be unduly restrictive.But relaxing the standard continuity and smoothness assumptions in endogenous variables offers besides the possibility of eliminating some of the restrictions, customarily adopted, as regards certain functional specifications and exogenous objects of the model. Think in this sense on the common density of characteristics or types, which can be extended to mappings containing discontinuity points, or to more general forms of distribution functions. The same can be said about the utility and production functions, whose typical continuous differentiability property may be relaxed, with respect to the type, to only measurability plus essential boundedness.The main goal of this paper is to present a theorem on necessary conditions for optimal control problems containing monotonicity constraints, which can be applied to a wide range of economic models without adopting the usual continuity and sm...

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On Monopolistic Licensing Strategies under Asymmetric Information

Schmitz

2002

Journal of Economic Theory

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Consider a research lab that owns a patent on a new technology but cannot develop a marketable final product based on the new technology. There are two downstream firms that might successfully develop the new product. If the downstream firms' benefits from being the sole supplier of the new product are private information, the research lab will sometimes sell two licences, even though under complete information it would have sold one exclusive licence. This is in contrast to the standard result that a monopolist will sometimes serve less, but never more buyers when there is private information.Journal of Economic Literature Classification Numbers: L12, D45, D82

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Participation Constraints in Adverse Selection Models

Cited by 351 publications

References 20 publications

Optimal Bunching without Optimal Control

Optimal Bunching without Optimal Control

Non‐smooth monotonicity constraints in optimal control problems: Some economic applications

On Monopolistic Licensing Strategies under Asymmetric Information

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