Deterministic versus Stochastic Mechanisms in Principal-€“Agent Models

Arbeitspapier

This paper shows that, contrary to what is generally believed, decreasing concavity of the agent's utility function with respect to the screening variable is not sufficient to ensure that stochastic mechanisms are suboptimal. The paper demonstrates, however, that they are suboptimal whenever the optimal deterministic mechanism exhibits no bunching. This is the case for most applications of the theory and therefore validates the literature's usual focus on deterministic mechanisms.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 26

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design
• Subject: principal-agent theory ; mechanism design ; deterministic mechanisms ; randomization ; bunching

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Strausz, Roland
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2004

Further information

• DOI: doi:10.5282/ubm/epub.13522
• Handle: http://hdl.handle.net/10419/93873
• URN: urn:nbn:de:bvb:19-epub-13522-8
• Last update: 10.03.2025, 11:44 AM CET