A dual characterization of incentive efficiency. (Q1411030)

The paper shows that in the context of two problems of resource allocation under informational asymmetries, generating adverse selection and moral hazard problems, the incentive efficient allocations, i.e. the set of Pareto optimal allocations within the set of resource feasible and incentive compatible allocations, can be determined as solutions to a linear programming problem. It then goes on to use the primal and dual problems and the associated complementary slackness conditions to obtain a precise and simple characterization of these allocations.