Solution Structures in Non-Ordered Discrete Screening Problems: Trees, Stars and Cycles
58 Pages Posted: 17 Jun 2006
Date Written: July 2004
Abstract
We analyze discrete-type self-selection problem when valuations are multidimensional or non-ordered, and costs can be non-separable. Spence-Mirrlees condition is generalized for these situations to reveal solution structures like trees, "bushes" and "stars". Pareto efficient "star" structures are shown to be non-degenerate, as well as cycles. Cycles can result in overall inefficiency and non-implementability of solutions. Under costs separability or alternative assumptions, optimal solutions are free of "essential" cycles which make them implementable with small rewards. Non-trivial counter-examples show that our assumptions are essential.
Keywords: Multidimensional screening, quasi-auctions, principal-agent, selfselection,nonlinear pricing, package pricing, Pareto efficiency
JEL Classification: D42, L10, L40
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