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Decomposable principal-agent problems

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  • Noldeke,G.
  • Samuelson,L.

    (University of Wisconsin-Madison, Social Systems Research Institute)

Abstract

This paper investigates conditions under which the adverse selection principal-agent problem can be decomposed into a collection of pointwise maximization problems. The analysis uses an extension of the type assignment approach to optimal nonuniform pricing, pioneered by Goldman, Leland and Sibley (1984), to derive simple sufficient conditions under which such a decomposition is possible. These conditions do not preclude optimal bunching that arises because virtual surplus functions violate the single-crossing property or participation constraints bind at interior types.

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Bibliographic Info

Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 14.

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Date of creation: 2004
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Handle: RePEc:att:wimass:200414

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Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

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  1. Araújo, Aloísio Pessoa de & Moreira, Humberto Ataíde, 2000. "Adverse Selection Problems Without the Spence-Mirrlees Condition," Economics Working Papers (Ensaios Economicos da EPGE) 389, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
  3. Goldman, M Barry & Leland, Hayne E & Sibley, David S, 1984. "Optimal Nonuniform Prices," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 305-19, April.
  4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  5. Feenstra, Robert C & Lewis, Tracy R, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1287-307, November.
  6. Rochet, J. C., 1985. "The taxation principle and multi-time Hamilton-Jacobi equations," Journal of Mathematical Economics, Elsevier, vol. 14(2), pages 113-128, April.
  7. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, vol. 68(4), pages 799-838, July.
  8. Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 263-82, April.
  9. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  10. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-61, September.
  12. Lewis, Tracy R & Sappington, David E M, 1989. "Inflexible Rules in Incentive Problems," American Economic Review, American Economic Association, vol. 79(1), pages 69-84, March.
  13. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
  14. Laffont, Jean-Jacques & Maskin, Eric, 1987. "Monopoly with asymmetric information about quality : Behavior and regulation," European Economic Review, Elsevier, vol. 31(1-2), pages 483-489.
  15. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
  16. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
  17. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
  18. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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