Participation constraints in discontinuous adverse selection models

Résumé

We present a set of necessary and sufficient conditions for a class of optimal con- trol problems with pure state constraints for which the objective function is lin- ear in the state variable but the objective function is only required to be upper semicontinuous in the control variable. We apply those conditions to economic environments in contract theory where discontinuities in objectives prevail. Ex- amples of applications include nonlinear pricing of digital goods and nonlinear pricing under competitive threat.

Codes JEL

Référence

David Martimort et Lars Stole, « Participation constraints in discontinuous adverse selection models », Theoretical Economics, vol. 17, n° 3, juillet 2022, p. 1145–1181.