Optimal contracting with private information on cost expectation and variability
AbstractWe study the screening problem that arises in a framework where, initially, the agent is privately informed about both the expected production cost and the cost variability and, at a later stage, he learns privately the cost realization. The speci c set of relevant incentive constraints, and so the characteristics of the optimal mechanism, depend nely upon the curvature of the principal s marginal surplus function as well as the relative importance of the two initial information problems. Pooling of production levels is optimally induced with respect to the cost variability when the principal's knowledge imperfection about the latter is sufficiently less important than that about the expected cost.
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Bibliographic InfoPaper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-59.
Date of creation: 2010
Date of revision:
Cost uncertainty; Multidimensional screening; Sequential screening;
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