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Incentive Problems with Unidimensional Hidden Characteristics: A Unified Approach

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  • Martin Hellwig

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

Abstract

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.

Suggested Citation

  • Martin Hellwig, 2006. "Incentive Problems with Unidimensional Hidden Characteristics: A Unified Approach," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_26, Max Planck Institute for Research on Collective Goods, revised Apr 2010.
    • Handle: RePEc:mpg:wpaper:2006_26
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Martin Hellwig, 2008. "A Maximum Principle for Control Problems with Monotonicity Constraints," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_04, Max Planck Institute for Research on Collective Goods.
    3. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
    4. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Hidden Characteristics; Incentive Problems; Principal-Agent Models; General Type Distributions;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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