A Dual Characterization of Incentive Efficiency

Belén Jerez

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: We show that incentive efficient allocations in economies with adverse selection and moral hazard can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete characterization of the optima. Our dual analysis identifies welfare effects associated with the incentives of the agents to truthfully reveal their private information. Because these welfare effects may generate non-convexities, incentive efficient allocations may involve randomization. Other properties of incentive efficient allocations are also derived.

Keywords: asymmetric information; incentive efficiency; linear programming; duality (search for similar items in EconPapers)
JEL-codes: C61 D61 D82 (search for similar items in EconPapers)
Pages: 37
Date: 2001-09-10
New Economics Papers: this item is included in nep-ent and nep-net
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Journal Article: A dual characterization of incentive efficiency (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:494.01

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