A general Lagrangian approach for non-concave moral hazard problems (Q5931982)

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.