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A Dual Characterization of Incentive Efficiency

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  • Bel? Jerez

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Abstract

We show that incentive efficient allocations in economies with adverse selection and moral hazard 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.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 494.01.

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Length: 37
Date of creation: 10 Sep 2001
Date of revision:
Handle: RePEc:aub:autbar:494.01

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Keywords: asymmetric information; incentive efficiency; linear programming; duality;

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  1. Alberto Bisin & Piero Gottardi, 1998. "Competitive Equilibria with Asymmetric Information," Levine's Working Paper Archive 2062, David K. Levine.
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Cited by:
  1. Daron Acemoglu & Alp Simsek, 2010. "Moral Hazard and Efficiency in General Equilibrium with Anonymous Trading," Levine's Working Paper Archive 661465000000000232, David K. Levine.
  2. Belen Jerez, 2005. "Incentive Compatibility and Pricing under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 28-47, January.
  3. Joon Song, 2012. "Futures market: contractual arrangement to restrain moral hazard in teams," Economic Theory, Springer, vol. 51(1), pages 163-189, September.
  4. Paolo Siconolfi & Aldo Rustichini, 2012. "Economies with Observable Types," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 57-71, January.
  5. Belén Jerez, 2012. "Competitive equilibrium with search frictions : a general equilibrium approach," Economics Working Papers we1235, Universidad Carlos III, Departamento de Economía.

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