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Stochastic mechanisms in settings without monetary transfers: The regular case

  • Kovác, Eugen
  • Mylovanov, Tymofiy

We analyze relative performance of stochastic and deterministic mechanisms in an environment that has been extensively studied in the literature on communication (e.g., [Vincent P. Crawford, Joel Sobel, Strategic information transmission, Econometrica 50 (6) (1982) 1431-1451]) and optimal delegation (e.g., [Bengt Holmström, On the theory of delegation, in: M. Boyer, R.E. Kihlstrom (Eds.), Bayesian Models in Economic Theory, North-Holland, 1984, pp. 115-141]): a principal-agent model with hidden information, no monetary transfers, and single-peaked preferences. We demonstrate that under the common assumption of quadratic payoffs and a certain regularity condition on the distribution of private information and the agent's bias, the optimal mechanism is deterministic. We also provide an explicit characterization of this mechanism.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 4 (July)
Pages: 1373-1395

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:4:p:1373-1395
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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