Abstract
We present a set of necessary and sufficient conditions for a class of optimal con- trol problems with pure state constraints for which the objective function is lin- ear 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. Ex- amples of applications include nonlinear pricing of digital goods and nonlinear pricing under competitive threat.
JEL codes
- D82: Asymmetric and Private Information • Mechanism Design
- D86: Economics of Contract: Theory
Reference
David Martimort, and Lars Stole, “Participation constraints in discontinuous adverse selection models”, Theoretical Economics, vol. 17, n. 3, July 2022, p. 1145–1181.
Published in
Theoretical Economics, vol. 17, n. 3, July 2022, p. 1145–1181