American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Monotone Function Intervals: Theory and Applications
American Economic Review
vol. 114,
no. 8, August 2024
(pp. 2239–70)
Abstract
A monotone function interval is the set of monotone functions that lie pointwise between two fixed monotone functions. We characterize the set of extreme points of monotone function intervals and apply this to a number of economic settings. First, we leverage the main result to characterize the set of distributions of posterior quantiles that can be induced by a signal, with applications to political economy, Bayesian persuasion, and the psychology of judgment. Second, we combine our characterization with properties of convex optimization problems to unify and generalize seminal results in the literature on security design under adverse selection and moral hazard.Citation
Yang, Kai Hao, and Alexander K. Zentefis. 2024. "Monotone Function Intervals: Theory and Applications." American Economic Review, 114 (8): 2239–70. DOI: 10.1257/aer.20230330Additional Materials
JEL Classification
- C61 Optimization Techniques; Programming Models; Dynamic Analysis
- C65 Miscellaneous Mathematical Tools
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D82 Asymmetric and Private Information; Mechanism Design
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- G12 Asset Pricing; Trading Volume; Bond Interest Rates