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On the strategic use of risk and undesirable goods in multidimensional screening

A. Lachapelle, F. Santambrogio in Journal of Mathematical Economics, Volume 47, Issue 7, 2011

A monopolist sells goods possibly with a characteristic consumers dislike (for instance, he sells random goods to risk averse agents), which does not affect the production costs. We investigate the ques- tion whether using undesirable goods is profitable to the seller.

We prove that in general this may be the case, depending somehow on the correlation between agents types and aversion. This is due to screen- ing effects that outperform this aversion. We analyze, in a continuous framework, several multidimensional cases.

Keywords: principal-agent problem, adverse selection, calculus of variations, nonlinear pricing.

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