Ironing without control (Q654524)

The ``ironing'' technique introduced by \textit{R. B. Myerson} [``Optimal auction design'', Math. Oper. Res. 6, 58--73 (1981; Zbl 0496.90099)] is extended to more general objective functions. The approach is based on a generalized notion of virtual surplus which can be maximized pointwise even when the monotonicity constraint implied by incentive compatibility is binding. The proposed technique is applicable to quasi-linear Principal-Agent models where the standard virtual surplus is weakly concave in the allocation or appropriately separable in the allocation and type. No assumptions on allocation rules are required beyond monotonicity.