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Reducing incentive constraints in bidimensional screening

Calagua, Braulio (2018): Reducing incentive constraints in bidimensional screening.

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Abstract

This paper studies screening problems with quasilinear preferences, where agents' private information is two-dimensional and the allocation instrument is one-dimensional. A pre-order in the set of types is defined comparing types by their marginal valuation for the instrument, which allows reducing the incentive compatibility constraints that must be checked. With this approach, the discretized problem becomes computationally tractable. As an application, it is numerically solved an example from Lewis and Sappington [Lewis, T. and Sappington, D. E., 1988. Regulating a monopolist with unknown demand and cost functions. The RAND Journal of Economics, 438-457].

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