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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
Uncertainty and Imperfect Information in Markets
307
In turn, this equals
where the first equality follows via integration by parts. To summarize the analysis to
this point:
Lemma6.10. A necessary and sufficient condition for a direct-revelation mechanism to be
interim individually rational is that expression (6.3.26) be non-negative.
The second-best problem can now be stated:
subject to the constraints that (6.3.26) be non-negative,
¯
c
c
x(b, c)g(c)dc
be nondecreas-
ing in b, and
¯
b
0
x(b, c)f (b)db
be nonincreasing in c. In light of Proposition 6.12, the
constraint that expression (6.3.26) be non-negative is binding. Let λ > 0 be the Lagrange
multiplier ...
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Publisher Resources

ISBN: 9780444536853