Wald Decomposition Theorem Any zero mean covariance stationary processxt can be represented in the form of xt = 1X j =0 dj t j + j ; where d0 = 1 ; 1X j =0 d 2 j < 1 The termt is white noise and represents the prediction error defined to bet = xt P[xt j xt 1;]...
Contract Theory 1 Adverse Selection Let us set up the problem as follows. The set of supplier’s type;Q = fq0;q1g, where 0< q0 < q1. Here supplier of typeq0 is superior, and supplier of typeq1 is inferior. And assume that the true type of supplier is only know...