Incentive Problems with Unidimensional Hidden Characteristics: A Uni…fied Approach

46 Pages Posted: 5 Dec 2006 Last revised: 11 Apr 2010

See all articles by Martin F. Hellwig

Martin F. Hellwig

Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics; European Corporate Governance Institute (ECGI)

Date Written: April 2010

Abstract

The paper develops a technique for studying incentive problems with unidimensional hidden characteristics in a way that is independent of whether the type set is …nite, the type distribution has a continuous density, or the type distribution has both mass points and an atomless part. By this technique, the proposition that optimal incentive schemes induce no distortion "at the top" and downward distortions "below the top" is extended to arbitrary type distributions. However, mass points in the interior of the type set require pooling with adjacent higher types and, unless there are other complications, a discontinuous jump in the transition from adjacent lower types.

Keywords: Hidden Characteristics, Incentive Problems, Principal-Agent Models, General Type Distributions

JEL Classification: D82, D86, C61

Suggested Citation

Hellwig, Martin F., Incentive Problems with Unidimensional Hidden Characteristics: A Uni…fied Approach (April 2010). MPI Collective Goods Preprint No. 2006/26, Available at SSRN: https://ssrn.com/abstract=949440 or http://dx.doi.org/10.2139/ssrn.949440

Martin F. Hellwig (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

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