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Mechanism Design with Moral Hazard

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  • Suehuyn Kwon

Abstract

This paper characterizes when the one-stage deviation IC constraints in the usual sense of dynamic mechanism design are sufficient. One can easily construct examples of when they are not sufficient. If the current state or the belief is not a sufficient summary statics of the agent’s private history, the one-stage deviation IC constraints are not sufficient in general. The paper provides sufficient conditions for when they are sufficient in the usual sense; it also provides a necessary and sufficient condition for all IC constraints if the one-stage deviation IC constraints in the usual sense are not sufficient.

Suggested Citation

  • Suehuyn Kwon, 2017. "Mechanism Design with Moral Hazard," CESifo Working Paper Series 6621, CESifo.
    • Handle: RePEc:ces:ceswps:_6621
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    References listed on IDEAS

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    More about this item

    Keywords

    dynamic mechanism design; adverse selection; moral hazard; revelation principle; one-shot deviation principle; endogenous state;
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