Deterministic versus stochastic mechanisms in principal-agent models
This paper shows that, contrary to what is generally believed, decreasing concavity of the agent'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 literature's usual focus on deterministic mechanisms.
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- Matthews, Steven & Moore, John, 1987.
"Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening,"
Econometric Society, vol. 55(2), pages 441-467, March.
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- Strausz, Roland, 2003. "Deterministic mechanisms and the revelation principle," Economics Letters, Elsevier, vol. 79(3), pages 333-337, June.
- Page, F H, Jr, 1991. "Optimal Contract Mechanisms for Principal-Agent Problems with Moral Hazard and Adverse Selection," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 1(4), pages 323-338, October.
- Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
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- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, July. Full references (including those not matched with items on IDEAS)
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