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The Benefits of Sequential Screening

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  • Krähmer, Daniel
  • Strausz, Roland

Abstract

This paper considers the canonical sequential screening model and shows that when the agent has an ex post outside option, the principal does not benefit from eliciting the agent's information sequentially. Unlike in the standard model without ex post outside options, the optimal contract is static and conditions only on the agent's aggregate final information. The benefits of sequential screening in the standard model are therefore due to relaxed participation rather than relaxed incentive compatibility constraints. We argue that in the presence of ex post participation constraints, the classical, local approach fails to identify binding incentive constraints and develop a novel, inductive procedure to do so instead. The result extends to the multi-agent version of the problem.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8629.

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Date of creation: Nov 2011
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Handle: RePEc:cpr:ceprdp:8629

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Related research

Keywords: dynamic mechanism design; Mirrlees approach; participation constraints; Sequential screening;

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References

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  1. Daniel Kr�mer & Roland Strausz, 2009. "Optimal Procurement Contracts with Pre--Project Planning," Papers 036, Departmental Working Papers.
  2. repec:rje:randje:v:37:y:2006:3:p:503-520 is not listed on IDEAS
  3. Krahmer Daniel & Strausz Roland, 2008. "Ex Post Private Information and Monopolistic Screening," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-27, October.
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Cited by:
  1. Daniel Danau & Annalisa Vinella, 2012. "Optimal contract with private information on cost expectation and variability," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201228, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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