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Incentive Compatibility and Differentiability: New Results and Classic Applications

Abstract

This note provides several generalizations of Mailath's (1987) result that incentive compatibility plus separation implies differentiability. The new results extend the theory to classic models in finance such as Leland and Pyle (1977), Glosten (1989), and De Marzo and Duffie (1999), that were not previously covered.Adverse selection, separation, differentiable strategies, incentive-compatibility

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