Open AccessParticipation constraints in discontinuous adverse selection models
Author(s) -
Martimort David,
Stole Lars A.
Publication year - 2022
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te3030
Subject(s) - nonlinear pricing , classification of discontinuities , nonlinear system , adverse selection , state variable , set (abstract data type) , class (philosophy) , variable (mathematics) , mathematical optimization , selection (genetic algorithm) , function (biology) , computer science , control (management) , control variable , state (computer science) , mathematical economics , mathematics , economics , microeconomics , algorithm , mathematical analysis , physics , quantum mechanics , artificial intelligence , evolutionary biology , biology , programming language , thermodynamics , machine learning
We present a set of necessary and sufficient conditions for a class of optimal control problems with pure state constraints for which the objective function is linear in the state variable but the objective function is only required to be upper semicontinuous in the control variable. We apply those conditions to economic environments in contract theory where discontinuities in objectives prevail. Examples of applications include nonlinear pricing of digital goods and nonlinear pricing under competitive threat.