Envelope Theorem without Differentiability

Yuntong Wang ()
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Yuntong Wang: Department of Economics, University of Windsor

No 1404, Working Papers from University of Windsor, Department of Economics

Abstract: We establish a new envelope theorem in which the choice variables are discrete and the objective function and the constraints are Lipschitz continuous with respect to the parameters. The parameters can be ?nite or in?nite dimensional vectors in a Banach space. In an application, we revisit the principal-agent problem and derive a weaker ?rst-order condition than the traditional one in the literature. In an insurance example, we use the condition to show an insurance contract that is discontinuous at some level of the loss.

Keywords: Envelope theorem; Discrete choice set; Lipschitz continuity; Generalized gradients; Principal-agent problem. (search for similar items in EconPapers)
JEL-codes: C61 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2014-10-27
New Economics Papers: this item is included in nep-mic
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http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1404.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:wis:wpaper:1404

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