Template-Type: ReDIF-Paper 1.0
Title: Unidirectional Incentive Compatibility
Author-Name: Daniel Krähmer
Author-Email: kraehmer@hcm.uni-bonn.de
Author-Name: Roland Strausz
Author-Email: strauszr@huberlin.de
Classification-JEL: D82
Keywords: Screening, Verifiability, Implementability, Optimal Contracting

Abstract: We study unidirectional incentive compatibility which incentivizes an agent to report truthfully
when she can misrepresent private information in one direction only. In the canonical
setting with continuous, one-dimensional private information, and quasi-linear utility, unidirectional
incentive compatibility imposes no restrictions on the allocation rule and holds if and
only if the change of the agent’s information rent function respects a lower bound that is based
on the allocation rule’s monotone envelope. In monopolistic screening models with strong interdependent
values or with countervailing incentives, optimal contracts differ from optimal
bidirectionally incentive compatible contracts, possibly displaying non-monotone allocations.

Note: 
Length: 48
Creation-Date: 2024-04
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp524
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_524