Marcelo de C. Griebeler, Jorge Paulo de Araújo
Department of Economics
Santa Catarina State University
Florianópolis, ZIP Code: 88035-001, BRAZIL
Department of Economics
Federal University of Rio Grande do Sul
Porto Alegre, ZIP Code: 90040-000, BRAZIL

Abstract. In this paper we propose an alternative assumption for the integral representation of the value function of Milgrom and Segal (2002). Instead of requiring that utility function has derivative almost everywhere, we impose that it has derivative in all its domain. The idea is to obtain conditions in order to apply the Lebesgue Theorem which provides at the same time an absolutely continuous value function and its integral representation. Our assumption is technically stronger than that of Milgrom and Segal (2002) but we argue that there is a substantial gain of economic interpretation in adding it. While it is difficult to interpret absolute continuity in terms of agent's preferences, the existence of the derivative everywhere means that all agent's choices are smooth.

Received: September 18, 2013

AMS Subject Classification: 28A10, 91A80, 91A25

Key Words and Phrases: value function, mechanism design, differentiability

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