Participation Constraints in Discontinuous Adverse Selection Models

David Martimort and Lars Stole

No 15251, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We present a set of necessary and sufficient conditions for a class of optimal control problems with pure state constraints for which the objective function is linear in the state variable but the objective function is only required to be upper semi-continuous in the control variable. We apply those conditions to a number of economic environments in contract theory where discontinuities in objectives prevail. Examples of applications include nonlinear pricing of digital goods, nonlinear pricing under competitive threat, and common agency models of regulation.

Keywords: Optimal control; Non-smooth optimization; Convex analysis; Type-dependent participation constraints; Principal-agent models (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Participation constraints in discontinuous adverse selection models (2022)
Working Paper: Participation constraints in discontinuous adverse selection models (2022)
Working Paper: Participation constraints in discontinuous adverse selection models (2022)
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