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Piecewise Linear Incentive Schemes

1988; Wiley; Volume: 90; Issue: 3 Linguagem: Inglês

10.2307/3440311

1467-9442

Frøystein Gjesdal, Frøystein Gjesdal,

Consumer Market Behavior and Pricing

General Outlook and Stabilization Theories and Policies of piecewis e linear incentive schemes are studied in a setting of moral hazard and adverse selection. The form of the best such function is analyzed. Particular attention is given to the loss from using piecewise linear schemes relative to optimal schemes, as well as the gain from usin g simpler functional forms such as the linear functions. The incentive problem is studied under various informational assumptions, which allow some calculations of the value of information. Copyright 1988 by The editors of the Scandinavian Journal of Economics.