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Screening Ethics When Honest Agents Care About Fairness

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  • Ingela Alger
  • Régis Renault

Abstract

A principal faces an agent with private information who is either honest or dishonest. Honesty involves revealing private information truthfully if the probability that the equilibrium allocation chosen by an agent who lies is small enough. Even the slightest intolerance for lying prevents full ethics screening whereby the agent is given proper incentives if dishonest and zero rent if honest. Still, some partial ethics screening may allow for taking advantage of the potential honesty of the agent, even if honesty is unlikely. If intolerance for lying is strong, the standard approach that assumes a fully opportunistic agent is robust. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 47 (2006)
Issue (Month): 1 (02)
Pages: 59-85

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Handle: RePEc:ier:iecrev:v:47:y:2006:i:1:p:59-85

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  1. Forges, Françoise & Koessler, Frédéric, 2005. "Communication equilibria with partially verifiable types," Economics Papers from University Paris Dauphine 123456789/168, Paris Dauphine University.
  2. Ching-to Albert Ma & Ingela Alger, 1999. "Moral Hazard, Insurance and Some Collusion," FMG Discussion Papers dp318, Financial Markets Group.
  3. Lacker, Jeffrey M & Weinberg, John A, 1989. "Optimal Contracts under Costly State Falsification," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1345-63, December.
  4. Tirole, Jean, 1991. "Collusion and the Theory of Organizations," IDEI Working Papers 9, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
  6. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  7. Brian Erard & Jonathan Feinstein, 1993. "Honesty and Evasion in the Tax Compliance Game," Carleton Economic Papers 93-06, Carleton University, Department of Economics, revised 1994.
  8. Dawes, Robyn M & Thaler, Richard H, 1988. "Anomalies: Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 187-97, Summer.
  9. Ingela Alger & Regis Renault, 2003. "Screening Ethics when Honest Agents Keep their Word," Boston College Working Papers in Economics 562, Boston College Department of Economics, revised 09 Nov 2004.
  10. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
  11. Green, Jerry R & Laffont, Jean-Jacques, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 447-56, July.
  12. Keith J. Crocker & John Morgan, 1998. "Is Honesty the Best Policy? Curtailing Insurance Fraud through Optimal Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 355-375, April.
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Cited by:
  1. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism Design and Intentions," Working Paper Series in Economics 53, University of Cologne, Department of Economics, revised 21 Aug 2012.
  2. Laurent Denant‐Boemont & David Masclet & Charles Noussair, 2011. "Announcement, Observation And Honesty In The Voluntary Contributions Game," Pacific Economic Review, Wiley Blackwell, vol. 16(2), pages 207-228, 05.
  3. Saran, Rene, 2011. "Bilateral trading with naive traders," Games and Economic Behavior, Elsevier, vol. 72(2), pages 544-557, June.
  4. Stephanie Rosenkranz & Patrick W. Schmitz, 2005. "Reserve prices in auctions as reference points," Bonn Econ Discussion Papers bgse24_2005, University of Bonn, Germany.
  5. Forges, Francoise & Koessler, Frederic, 2005. "Communication equilibria with partially verifiable types," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 793-811, November.
  6. Ingela Alger & Regis Renault, 2003. "Screening Ethics when Honest Agents Keep their Word," Boston College Working Papers in Economics 562, Boston College Department of Economics, revised 09 Nov 2004.
  7. Schmitz, Patrick W., 2006. "Optimal Selling Strategies When Buyers May Have Hard Information," CEPR Discussion Papers 5747, C.E.P.R. Discussion Papers.
  8. Stefano Demichelis & Jörgen Weibull, 2009. "Language, meaning and games A model of communication, coordination and evolution," Working Papers hal-00354224, HAL.
  9. repec:hal:wpaper:hal-00753473 is not listed on IDEAS
  10. Demichelis, Stefano & Weibull, Jörgen, 2006. "Efficiency, communication and honesty," Working Paper Series in Economics and Finance 645, Stockholm School of Economics, revised 28 Nov 2006.
  11. Conley, John P. & Neilson, William, 2009. "Endogenous games and equilibrium adoption of social norms and ethical constraints," Games and Economic Behavior, Elsevier, vol. 66(2), pages 761-774, July.
  12. Deneckere, Raymond & Severinov, Sergei, 2008. "Mechanism design with partial state verifiability," Games and Economic Behavior, Elsevier, vol. 64(2), pages 487-513, November.
  13. Pezeshki, Yahya & Baboli, Armand & Cheikhrouhou, Naoufel & Modarres, Mohammad & Akbari Jokar, Mohammad R., 2013. "A rewarding-punishing coordination mechanism based on Trust in a divergent supply chain," European Journal of Operational Research, Elsevier, vol. 230(3), pages 527-538.
  14. Jeanne Hagenbach & Frédéric Koessler & Eduardo Perez-Richet, 2012. "Certifiable Pre-Play Communication: Full Disclosure," PSE Working Papers hal-00753473, HAL.

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