"Countervailing Incentives in Adverse Selection Models: A Synthesis"

Iñaki Aguirre and Arantza Beitia
IKERLANAK, Working Paper Series IL 84/14.

Abstract

In this paper we propose a simple method of characterizing countervailing incentives in adverse selection problems. The key element in our characterization consists of analyzing properties of the full information problem. This allows solving the principal problem without using optimal control theory. Our methodology can also be applied to different economic settings: health economics, monopoly regulation, labour contracts, limited liabilities and environmental regulation.

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