Deterministic versus Stochastic Mechanisms in Principalâ€“Agent Models
AbstractThis paper shows that, contrary to what is generally believed, decreasing concavity of the agentâ€™s utility function with respect to the screening variable is not sufficient to ensure that stochastic mechanisms are suboptimal. The paper demonstrates, however, that they are suboptimal whenever the optimal deterministic mechanism exhibits no bunching. This is the case for most applications of the theory and therefore validates the literatureâ€™s usual focus on deterministic mechanisms.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 26.
Date of creation: Sep 2004
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More information through EDIRC
principal-agent theory; mechanism design; deterministic mechanisms; randomization; bunching.;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
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