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A necessary optimality condition in two-dimensional screening

Author

Listed:
  • Aloisio Araujo

    (IMPA
    FGV EPGE, Brazilian School of Economics and Finance)

  • Sergei Vieira

    (Ibmec, Av. Presidente Wilson 118)

  • Braulio Calagua

    (UDEP)

Abstract

This paper studies adverse selection problems with a one-dimensional principal instrument and a two-dimensional agent type. We provide an optimality condition that characterizes the bunching of continuum types. The approach is based on a reparameterization of the type space in terms of the endogenous optimal allocation level curves. The condition obtained is related with the optimality of two pooling types in the one-dimensional screening without the single-crossing. We illustrate the method by analyzing one example from the literature as well as a new example far from the linear-quadratic case

Suggested Citation

  • Aloisio Araujo & Sergei Vieira & Braulio Calagua, 2022. "A necessary optimality condition in two-dimensional screening," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 781-806, April.
    • Handle: RePEc:spr:joecth:v:73:y:2022:i:2:d:10.1007_s00199-021-01352-x
    DOI: 10.1007/s00199-021-01352-x
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    References listed on IDEAS

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    1. Araujo, Aloisio & Moreira, Humberto, 2010. "Adverse selection problems without the Spence-Mirrlees condition," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1113-1141, May.
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    8. Basov, Suren, 2001. "Hamiltonian approach to multi-dimensional screening," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 77-94, September.
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    10. Carlier, Guillaume, 2001. "A general existence result for the principal-agent problem with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 129-150, February.
    11. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
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    Cited by:

    1. Braulio Calagua, 2023. "Reducing incentive constraints in bidimensional screening," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 8(1), pages 107-150, December.
    2. Rabah Amir & Bernard Cornet & M. Ali Khan & David Levine & Edward C. Prescott, 2022. "Special Issue in honor of Nicholas C. Yannelis – Part II," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 377-385, April.

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    More about this item

    Keywords

    Two-dimensional screening; Bunching; Non single-crossing; Quasilinear equation; Characteristic curves;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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