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Unidirectional Incentive Compatibility

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  • Daniel Krähmer
  • Roland Strausz

Abstract

We study unidirectional incentive compatibility which incentivizes an agent to report truthfully when she can misrepresent private information in one direction only. In the canonical setting with continuous, one-dimensional private information, and quasi-linear utility, unidirectional incentive compatibility imposes no restrictions on the allocation rule and holds if and only if the change of the agent’s information rent function respects a lower bound that is based on the allocation rule’s monotone envelope. In monopolistic screening models with strong interdependent values or with countervailing incentives, optimal contracts differ from optimal bidirectionally incentive compatible contracts, possibly displaying non-monotone allocations.

Suggested Citation

  • Daniel Krähmer & Roland Strausz, 2024. "Unidirectional Incentive Compatibility," CRC TR 224 Discussion Paper Series crctr224_2024_524, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_524
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp524
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    References listed on IDEAS

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    More about this item

    Keywords

    Screening; Verifiability; Implementability; Optimal Contracting;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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