Unidirectional Incentive Compatibility

Daniel Krähmer () and Roland Strausz

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study unidirectional incentive compatibility which incentivizes an agent to report truthfully when she can misrepresent private information in one direction only. In the canonical setting with continuous, one-dimensional private information, and quasi-linear utility, unidirectional incentive compatibility imposes no restrictions on the allocation rule and holds if and only if the change of the agent’s information rent function respects a lower bound that is based on the allocation rule’s monotone envelope. In monopolistic screening models with strong interdependent values or with countervailing incentives, optimal contracts differ from optimal bidirectionally incentive compatible contracts, possibly displaying non-monotone allocations.

Keywords: Screening; Verifiability; Implementability; Optimal Contracting (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 48
Date: 2024-04
New Economics Papers: this item is included in nep-cta, nep-mic and nep-upt
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2024_524

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