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Unformatted text preview: y ( θ H ) > y ( θ L ) , therefore u ( c ( θ L ))-v ² y ( θ L ) θ H ³ = u ( c ( θ H ))-v ² y ( θ L ) θ H ³ > u ( c ( θ H ))-v ² y ( θ H ) θ H ³ the I.C. for type H is violated. So we know that when individuals have private information about their type, at least of the the I.C. constraints is binding at the optimal solution. 36...
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This note was uploaded on 12/10/2011 for the course MAT 121 taught by Professor Wong during the Fall '10 term at SUNY Stony Brook.
- Fall '10