Investment and Screening Under Asymmetric Endogenous Information
AbstractThis article provides an analysis of screening contracts in a complete but imperfect information environment as opposed to the usual incomplete information (Bayesian) environment. An agent faces a hold-up situation while making a cost-reducing specific investment that is not observed by the principal. To prevent the hold-up, the agent randomizes his investment strategy and the principal offers a screening contract. The informational rents provided by the equilibrium contract finance the investment. For a large class of cost functions, the randomization is such that the marginal surplus follows a Power distribution.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 35 (2004)
Issue (Month): 3 (Autumn)
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Web page: http://www.rje.org
Other versions of this item:
- Gonzalez, Patrick, 2002. "Investment and Screening under Asymmetric Endogenous Information," Cahiers de recherche 0201, GREEN.
- Gonz�lez, Patrick, 2002. "Investment and Screening under Asymmetric Endogenous Information," Cahiers de recherche 0204, Université Laval - Département d'économique.
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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