Template-Type: ReDIF-Paper 1.0
Author-Name: Philipp Renner
Author-Name-First: Philipp
Author-Name-Last: Renner
Title: An augmented first-order approach for incentive problems
Abstract: Incentive constraints are constraints that are optimization problems themselves.<br/>If these problems are non convex then the first order approach fails.<br/>We propose an alternative solution method where we use the value function as an additional constraint.<br/>This ensures that all solutions are incentive compatible.<br/>To get the value function we use a function interpolator like sparse grids.<br/>We demonstrate our approach by solving two examples from the literature were it was shown that the first order approach fails.<br/>
Creation-Date: 2020
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2020_010.pdf
File-Format: application/pdf
Number: 297498586
Classification-JEL: C63, D80, D82
Keywords: incentive constraints, first order approach, parametric optimization, value function approach
Handle: RePEc:lan:wpaper:297498586