A general Lagrangian approach for non-concave moral hazard problems
The authors establish a general Lagrangian for the moral hazard problem which generalizes the well known first-order approach. It requires that besides the multiplier of the first-order condition, there exist multipliers for the second-order condition and for the binding actions of the incentive compatibility constraint. The authors show that their approach can be useful to treat the finite and infinite state space cases.
scientific article; zbMATH DE number 1594788