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Monotone Function Intervals: Theory and Applications

Economics

Monotone Function Intervals: Theory and Applications

K. H. Yang and A. K. Zentefis

Discover the complexities of monotone function intervals with groundbreaking research by Kai Hao Yang and Alexander K. Zentefis. This study delves into extreme points of monotone functions, revealing insights that impact political economy, Bayesian persuasion, and more. Uncover how these findings can transform our understanding of security design in challenging selection scenarios.... show more
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.
Publisher
Published On
Apr 12, 2024
Authors
Kai Hao Yang, Alexander K. Zentefis
DOI
https://doi.org/10.1257/aer.20230330
Tags
monotone functions
extreme points
Bayesian persuasion
political economy
security design
adverse selection
moral hazard

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