We show that incentive e cient allocations in economies with adverse se- lection and moral hazard can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete charac- terization of the optima. Our dual analysis identi es welfare e ects associated with the incentives of the agents to truthfully reveal their private information. Because these welfare e ects may generate non-convexities, incentive e cient allocations may involve randomization. Other properties of incentive e cient allocations are also derived

Jerez, Belén

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A Dual Characterization of Incentive Efficiency

Universidad Carlos III de Madrid e-Archivo

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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

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A Dual Characterization of Incentive Efficiency

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