ps5_s_mn.gms : Parts Supply Problem w/ 5 Types w/ Random p(i)

**Description**

Hideo Hashimoto, Kojun Hamada, and Nobuhiro Hosoe, "A Numerical Approach to the Contract Theory: the Case of Adverse Selection", GRIPS Discussion Paper 11-27, National Graduate Institute for Policy Studies, Tokyo, Japan, March 2012. http://www.grips.ac.jp/r-center/en/discussion_papers/11-27/

**Reference**

- Hashimoto, H, Hamada, K, and Hosoe, N, A Numerical Approachto the Contract Theory: The Case of Adverse Selection. GRIPS Discussion Papers, National Graduate Institute for Policy Studies, 2012.

**Small Model of Type :** NLP

**Category :** GAMS Model library

**Main file :** ps5_s_mn.gms

```
$ Title Parts Supply Problem w/ 5 Types w/ Random p(i) (PS5_S_MN,SEQ=377)
* Hideo Hashimoto, Kojun Hamada, and Nobuhiro Hosoe, "A Numerical Approach
* to the Contract Theory: the Case of Adverse Selection", GRIPS Discussion
* Paper 11-27, National Graduate Institute for Policy Studies, Tokyo, Japan,
* March 2012.
*
* http://www.grips.ac.jp/r-center/en/discussion_papers/11-27/
Option limcol=0,limrow=0,solprint=off;
* Definition of Set
Set i type of supplier /0*4/
t no. of Monte-Carlo draws /1*1000/;
Alias (i,j);
* Definition of Parameters
Parameter
theta(i) efficiency
pt(i,t) probability of type
p(i) probability of type;
theta(i)=ord(i)/card(i);
* Generating probability
loop(t,pt(i,t) =uniform(0,1););
pt(i,t) =pt(i,t)/sum(j,pt(j,t));
*pt(i,"1")=1/card(i);
Parameter
F(i,t) "cumulative probability (Itho p. 42)"
noMHRC0(i,t) "no MHRC combination between i and i-1"
* (MHRC: monotone hazard rate condition)
noMHRC(t) ">=1: no MHRC case";
F(i,t) =sum(j$(ord(j) le ord(i)), pt(j,t));
noMHRC0(i,t)$(ord(i) lt card(i))
=1$(F(i,t)/pt(i+1,t) lt F(i-1,t)/pt(i,t));
noMHRC(t)$(sum(i, noMHRC0(i,t)) ge 1)=1;
Scalar ru reservation utility /0/;
* Definition of Primal/Dual Variables
Positive Variable
x(i) quality
b(i) maker's revenue
w(i) price;
Variable
Util maker's utility;
Equation
obj maker's utility function
rev(i) maker's revenue function
pc(i) participation constraint
licd(i) incentive compatibility constraint
licu(i) incentive compatibility constraint
ic(i,j) global incentive compatibility constraint
mn(i) monotonicity constraint;
* Specification of Equations
obj.. Util =e= sum(i, p(i)*(b(i)-w(i)));
rev(i)..b(i) =e= x(i)**(0.5);
pc(i).. w(i)-theta(i)*x(i) =g= ru;
licd(i)..w(i)-theta(i)*x(i) =g= w(i+1)-theta(i)*x(i+1);
licu(i)..w(i)-theta(i)*x(i) =g= w(i-1)-theta(i)*x(i-1);
ic(i,j)..w(i)-theta(i)*x(i) =g= w(j)-theta(i)*x(j);
mn(i).. x(i) =g= x(i+1);
* Setting Lower Bounds on Variables to Avoid Division by Zero
x.lo(i)=0.0001;
* Defining and Solving the Model
Model SB_lic /obj,rev,pc,licd/;
Model SB_lic2 /obj,rev,pc,licd,mn/;
* Options to solve models quickly
SB_lic.solvelink=5;
SB_lic2.solvelink=5;
Parameter Util_lic(t) "Util solved w/o MN"
Util_lic2(t) "Util solved w/ MN"
Util_gap(t) "Gap between these two Util"
x_lic(i,t) "x solved in w/o MN"
x_lic2(i,t) "x solved in w/ MN"
MN_lic(t) "Monotonicity of x solved w/o MN"
MN_lic2(t) "Monotonicity of x solved w/ MN"
loop(t,
p(i)=pt(i,t);
* Solving the model w/o MN
Solve SB_lic maximizing Util using NLP;
Util_lic(t)=util.l;
x_lic(i,t)=x.l(i);
MN_lic(t)=sum(i, 1$(round(x.l(i),10) lt round(x.l(i+1),10)));
* Solving the model w/ MN
Solve SB_lic2 maximizing Util using NLP;
Util_lic2(t)=util.l;
x_lic2(i,t)=x.l(i);
MN_lic2(t)=sum(i, 1$(round(x.l(i),10) lt round(x.l(i+1),10)));
);
Util_gap(t)=1$(round(Util_lic(t),10) ne round(Util_Lic2(t),10));
* Computing probability that MHRC and MN holds.
Parameter
p_noMHRC no MHRC case [%]
p_noMN_lic no MN case [%]
p_Util_gap no Util-equality case [%]
;
p_noMHRC =sum(t$(noMHRC(t) gt 0), 1) /card(t)*100;
p_noMN_lic =sum(t$(MN_lic(t) gt 0), 1) /card(t)*100;
p_Util_gap =sum(t$(Util_gap(t) gt 0), 1) /card(t)*100;
Display p_noMHRC,p_noMN_LIC,p_Util_gap;
* End of Model
* Generating CSV file for summary
File sol /solution_lic.csv/;
put sol;
sol.pc=5;
sol.pw=32767;
put ""; loop(i, put "pt(i,t)";); put "" "" "" ""; loop(i, put "x: w/o MN";); loop(i, put "x: w/ MN";); put /;
put ""; loop(i, put i.tl;); put ">=1: no MHRC" "Util: w/o MN" "Util: w/ MN" "Util_gap: =1: not equal";
loop(i, put i.tl;); loop(i, put i.tl;); put "MN_lic: >=1: no MN" "MN_lic2: >=1: no MN"/;
loop(t, put t.tl; loop(i, put pt(i,t):10:5;); put noMHRC(t) Util_lic(t):20:10 Util_Lic2(t):20:10 Util_gap(t);
loop(i, put X_lic(i,t);); loop(i, put X_lic2(i,t);); put MN_lic(t) MN_lic2(t)/;);
put /;
* End of CSV file generation
```