The Generalized Informativeness Principle
20 Pages Posted: 8 Dec 2014 Last revised: 7 May 2021
Date Written: December 2014
This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even without the first-order approach. Our result holds for both separable and non-separable utility functions.
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