Multivariate Majorization in Principal-Agents Models

Nicholas C Bedard, Jacob K Goeree and Ningyi Sun

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Abstract: We introduce a definition of multivariate majorization that is new to the economics literature. Our majorization technique allows us to generalize Mussa and Rosen's (1978) "ironing" to a broad class of multivariate principal-agents problems. Specifically, we consider adverse selection problems in which agents' types are one dimensional but informational externalities create a multidimensional ironing problem. Our majorization technique applies to discrete and continuous type spaces alike and we demonstrate its usefulness for contract theory and mechanism design. We further show that multivariate majorization yields a natural extension of second-order stochastic dominance to multiple dimensions and derive its implications for decision making under multivariate risk.

Date: 2023-08
New Economics Papers: this item is included in nep-cta and nep-mic
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