On the value of randomization
Journal article: The paper identifies a necessary and sufficient condition for a deterministic local optimum to be locally improved upon by a stochastic deviation. When this condition is satisfied, a method to construct the stochastic allocations that increase the objective is provided. This technique is applied to a number of adverse selection and moral hazard problems.
Author(s)
Stéphane Gauthier, Guy Laroque
Journal
- Journal of Economic Theory
Date of publication
- 2014
Keywords JEL
Keywords
- Second order conditions
- Constrained optimization
- Incentive constraints
- Random contracts
Pages
- 493-507
URL of the HAL notice
Version
- 1
Volume
- 151