JOURNAL ARTICLE

A duality and free boundary approach to adverse selection.

  • Published In: Mathematical Models & Methods in Applied Sciences, 2024, v. 34, n. 12. P. 2351 1 of 3

  • Database: Academic Search Ultimate 2 of 3

  • Authored By: McCann, Robert J.; Zhang, Kelvin Shuangjian 3 of 3

Abstract

Adverse selection is a version of the principal-agent problem that includes monopolist nonlinear pricing, where a monopolist with known costs seeks a profit-maximizing price menu facing a population of potential consumers whose preferences are known only in the aggregate. For multidimensional spaces of agents and products, Rochet and Choné (Econometrica, 1998) reformulated this problem as a concave maximization over the set of convex functions, by assuming agent preferences combine bilinearity in the product and agent parameters with a quasilinear sensitivity to prices. We characterize solutions to this problem by identifying a dual minimization problem. This duality allows us to reduce the solution of the square example of Rochet–Choné to a novel free boundary problem, giving the first analytical description of an overlooked market segment. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Mathematical Models & Methods in Applied Sciences. 2024/11, Vol. 34, Issue 12, p2351
  • Document Type:Article
  • Subject Area:Economics
  • Publication Date:2024
  • ISSN:0218-2025
  • DOI:10.1142/S0218202524500507
  • Accession Number:180651317
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