In a CES monopolistic-competition model with two-stage entry and noisy signals, the activation cutoff is constrained-efficient, so welfare losses from stricter verification come from the resource cost of precision, not from misaligned incentives.
Thus, write the FE condition as follows: H(p∗,t∗)=e 1 2 (σ−1)2−(σ−1)p∗ Φρ(−p∗+σ−1,−t ∗+ρ(σ−1) )− −Φ ρ(−p∗,−t∗)− δf b(ρ) f Φ(−t∗)− δf n f =0
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In a CES monopolistic-competition model with two-stage entry and noisy signals, the activation cutoff is constrained-efficient, so welfare losses from stricter verification come from the resource cost of precision, not from misaligned incentives.