Abstract:
This paper studies the existence and characterization of optimal
solutions to the principal-agent problem with adverse selection for both discrete
and continuous problems. The existence results are derived by the abstract
concepts of differentiability and convexity. It is known that under the Spence
Mirrlees condition, the principal-agent problem can be reduced to a simpler
problem which can be solved explicitly. But not much results on the solution
are known when the Spence Mirrlees condition does not hold. For the problem
without the Spence Mirrlees condition, we give some sufficient conditions
to verify the linear independence and the Mangasarian Fromovitz constraint
qualification.