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Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process

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  • Raphael Boleslavsky
  • Maher Said

Abstract

We examine a model of long-term contracting in which the buyer is privately informed about the stochastic process by which her value for a good evolves. In addition, the realized values are also private information. We characterize a class of environments in which the profit-maximizing long-term contract offered by a monopolist takes an especially simple structure: we derive sufficient conditions on primitives under which the optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher realized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time, eventually leading to inefficiently early termination of the relationship. Moreover, the menu choices differ by future generosity, with more costly (up front) plans guaranteeing greater quantity provision in the future. Thus, the seller screens process information in the initial period and then progressively screens across realized values so as to reduce the information rents paid in future periods. Copyright , Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/restud/rds021
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Bibliographic Info

Article provided by Oxford University Press in its journal Review of Economic Studies.

Volume (Year): 80 (2013)
Issue (Month): 1 ()
Pages: 1-34

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Handle: RePEc:oup:restud:v:80:y:2013:i:1:p:1-34

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  1. Alessandro Pavan, 2007. "Long Term Contracting in a Changing World," Discussion Papers 1493, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Dirk Bergemann & Juuso V‰lim‰ki, 2010. "The Dynamic Pivot Mechanism," Econometrica, Econometric Society, vol. 78(2), pages 771-789, 03.
  3. Oksana Loginova & Curtis Taylor, 2008. "Price experimentation with strategic buyers," Review of Economic Design, Springer, vol. 12(3), pages 165-187, September.
  4. repec:rje:randje:v:37:y:2006:3:p:503-520 is not listed on IDEAS
  5. Andrzej Skrzypacz & Simon Board, 2011. "Revenue Management with Forward-Looking Buyers," 2011 Meeting Papers 87, Society for Economic Dynamics.
  6. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
  7. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-67, March.
  8. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
  9. Pascal Courty & Li Hao, 1997. "Sequential screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Krähmer, Daniel & Strausz, Roland, 2010. "Optimal Procurement Contracts with Pre–Project Planning," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 303, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Cited by:
  1. Krähmer, Daniel & Strausz, Roland, 2014. "Ex post information rents in sequential screening," CEPR Discussion Papers 9927, C.E.P.R. Discussion Papers.
  2. Hao Li & Xianwen Shi, 2013. "Discriminatory Information Disclosure," Working Papers tecipa-497, University of Toronto, Department of Economics.
  3. Terstiege, Stefan, 2013. "Precontractual Investigation and Sequential Screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 429, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Krähmer, Daniel & Strausz, Roland, 2013. "Ex post information rents and disclosure in sequential screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 406, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Rahul Deb & Maher Said, 2013. "Dynamic Screening with Limited Commitment," Working Papers tecipa-485, University of Toronto, Department of Economics.

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