Skip to main content
Our website will undergo scheduled maintenance on Sunday, December 17. During this time, connection to our website and some of its features may be unavailable. Thank you for your patience and we apologize for any inconvenience.
Skip to main content
SHARE   Share on Twitter Share on Facebook Share on LinkedIn Email

Incentive Compatibility as a Nonnegative Martingale

This paper considers a dynamic Mirrleesian economy and decomposes agents'''' lifetime incentive compatibility (IC) constraints into a sequence of temporal ones. We encode the frequency and severeness of these temporal IC constraints by their associated Lagrange multipliers,showing that the accumulation of the Lagrange multipliers on the consumption part is a nonnegative martingale. It is emphasized that, distinct from the extant literature, this martingale property is derived directly from the IC constraints and so is independent of the optimization of the social planning problem. We apply our fi nding to (i) the characterization of constrained efficient intertemporal wedges in the aggregate, and (ii) the extension of the so-called immiseration to an environment more general than the extant literature.

Read Full Text

DOI: 10.20955/wp.2015.043


Subscribe to our newsletter


Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top