Certainty Equivalence and Noisy Redistribution

Pré-publication, Document de travail: This paper assesses the usefulness of stochastic contracts in the presence of informational asymmetries. It identifies circumstances where a stochastic redistribution policy is socially dominated by the deterministic policy where after-tax income lotteries are replaced with their certainty equivalent. It also provides a parametric example where every stochastic menu which has the optimal deterministic menu as certainty equivalent is dominated by the deterministic menu, while there exist feasible and incentive compatible lotteries improving locally upon the deterministic menu.

Auteur(s)

Stéphane Gauthier, Guy Laroque

Date de publication
  • 2021
Mots-clés JEL
C61 D82 D86 H21
Mots-clés
  • Asymmetric information
  • Random contracts
  • Certainty equivalent
Référence interne
  • PSE Working Papers n°2021-51
Pages
  • 24 p.
Version
  • 1