Stochastic Mechanisms and Quasi-Linear Preferences

CentER Discussion Paper Series No. 2012-047

17 Pages Posted: 13 Jun 2012

See all articles by Christoph Schottmüller

Christoph Schottmüller

University of Cologne; Tilburg Law and Economics Center (TILEC)

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Date Written: June 13, 2012

Abstract

Many optimal contracting papers use quasi-linear preferences. To exclude stochastic mechanisms they impose a (sucient) condition on how the curvature of an agent's objective function varies with type. We show with quasi-linear preferences that an optimal deterministic outcome without bunching implies that stochastic mechanisms are not optimal (without any additional assumptions).

Keywords: stochastic mechanisms, contract theory, quasi-linear preferences

JEL Classification: D82, H21

Suggested Citation

Schottmüller, Christoph and Boone, Jan, Stochastic Mechanisms and Quasi-Linear Preferences (June 13, 2012). CentER Discussion Paper Series No. 2012-047, Available at SSRN: https://ssrn.com/abstract=2083660 or http://dx.doi.org/10.2139/ssrn.2083660

Christoph Schottmüller (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jan Boone

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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