A general lagrangian approach for non-concave moral hazard problems

Aloisio Araujo and Humberto Moreira ()

No 426, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We establish a general Lagrangian for the moral hazard problem which generalizes the well known first order approach (FOA). It requires that besides the multiplier of the first order condition, there exist multipliers for the second order condition and for the binding actions of the incentive compatibility constraint. Some examples show that our approach can be useful to treat the finite and infinite state space cases. One of the examples is solved by the second order approach. We also compare our Lagrangian with 1\1irrlees'.

Date: 2001-06-01
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: A general Lagrangian approach for non-concave moral hazard problems (2001)
Working Paper: A general lagrangian approach for non-concave moral hazard problems (2000)
Working Paper: A general Lagrangian approach for non-concave moral hazard problems (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:426

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