The no-upward-crossing condition, comparative statics, and the moral-hazard problem

Hector Chade, Jeroen Swinkels

Research output: Contribution to journalArticle

Abstract

We define and explore no-upward-crossing (NUC), a condition satisfied by every parameterized family of distributions commonly used in economic applications. Under smoothness assumptions, NUC is equivalent to log-supermodularity of the negative of the derivative of the distribution with respect to the parameter. It is characterized by a natural monotone comparative static and is central in establishing quasi-concavity in a family of decision problems. As an application, we revisit the first-order approach to the moral-hazard problem. NUC simplifies the relevant conditions for the validity of the first-order approach and gives them an economic interpretation. We provide extensive analysis of sufficient conditions for the first-order approach for exponential families.

Original languageEnglish (US)
Pages (from-to)445-476
Number of pages32
JournalTheoretical Economics
Volume15
Issue number2
DOIs
StatePublished - May 1 2020

Keywords

  • D81
  • D86
  • first-order approach
  • Log-supermodularity
  • moral hazard
  • quasi-concavity

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Fingerprint Dive into the research topics of 'The no-upward-crossing condition, comparative statics, and the moral-hazard problem'. Together they form a unique fingerprint.

  • Cite this