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A Dual Characterization of Incentive Efficiency

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  • Bel? Jerez
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.

Suggested Citation

  • Bel? Jerez, 2001. "A Dual Characterization of Incentive Efficiency," UFAE and IAE Working Papers 494.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:494.01
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    References listed on IDEAS

    as
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    Cited by:

    1. Joon Song, 2012. "Futures market: contractual arrangement to restrain moral hazard in teams," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 163-189, September.
    2. Alberto Bisin & Piero Gottardi, 2006. "Efficient Competitive Equilibria with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 485-516, June.
    3. Scotchmer, Suzanne & Shannon, Chris, 2019. "Verifiability and group formation in markets," Journal of Economic Theory, Elsevier, vol. 183(C), pages 417-477.
    4. Dosis, Anastasios, 2018. "On signalling and screening in markets with asymmetric information," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 140-149.
    5. Daron Acemoglu & Alp Simsek, 2010. "Moral Hazard and Efficiency in General Equilibrium with Anonymous Trading," Levine's Working Paper Archive 661465000000000232, David K. Levine.
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    9. Belen Jerez, 2005. "Incentive Compatibility and Pricing under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 28-47, January.
    10. Alex Citanna & Paolo Siconolfi, 2020. "Constrained Efficient Markets For Manipulation Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1531-1567, November.
    11. Dosis, Anastasios, 2022. "Price caps and efficiency in markets with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 99(C).
    12. Jerez, Belén, 2014. "Competitive equilibrium with search frictions: A general equilibrium approach," Journal of Economic Theory, Elsevier, vol. 153(C), pages 252-286.
    13. Paolo Siconolfi & Aldo Rustichini, 2012. "Economies with Observable Types," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 57-71, January.

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    More about this item

    Keywords

    asymmetric information; incentive efficiency; linear programming; duality;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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