Distortion in Screening and Spatial Preferences

We study a multidimensional screening problem with minimal restrictions on valuations. Our ?-relaxation of the constraints excludes bunching and cycles in the graph of active incentive-compatibility constraints. Therefore, the Lagrange multipliers do exist and enable us in characterizing distortion. In particular, under “spatial” preferences that include both the Hotelling and the Spence-Mirrlees cases, the solution has a simple planar graph. Consequently, the pattern of distortion is centrifugal, i.e., the points of service are biased towards the low-valuation market segments