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Incentive Problems with Unidimensional Hidden Characteristics: A Unified Approach

  • Martin Hellwig

    ()

    (Max Planck Institute for Research on Collective Goods, Bonn)

The paper develops a technique for studying incentive problems with unidimensional hidden characteristics in a way that is independent of whether the type set is nite, the type distribution has a continuous density, or the type distribution has both mass points and an atomless part. By this technique, the proposition that optimal incentive schemes induce no distortion "at the top" and downward distortions "below the top" is extended to arbitrary type distributions. However, mass points in the interior of the type set require pooling with adjacent higher types and, unless there are other complications, a discontinuous jump in the transition from adjacent lower types.

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File URL: http://www.coll.mpg.de/pdf_dat/2006_26online.pdf
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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2006_26.

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Date of creation: Dec 2006
Date of revision: Apr 2010
Handle: RePEc:mpg:wpaper:2006_26
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  1. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Hellwig, Martin F., 2007. "A contribution to the theory of optimal utilitarian income taxation," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1449-1477, August.
  3. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  4. Martin Hellwig, 2008. "A Maximum Principle for Control Problems with Monotonicity Constraints," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_04, Max Planck Institute for Research on Collective Goods.
  5. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
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