Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process
AbstractWe 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, her realized values are also her private information. We characterize the profit-maximizing long-term contract offered by a monopolist in this setting. This optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher real- ized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time (eventually leading to inefficient early termination of the re- lationship). 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 buyers in the initial period, and then progressively screens additional buyers so as to re- duce the information rents paid in future periods.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Miami, Department of Economics in its series Working Papers with number 2011-5.
Length: 45 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming: Under Review
Contact details of provider:
Postal: P.O. Box 248126, Coral Gables, FL 33124-6550
Phone: (305) 284-5540
Fax: (305) 284-2985
Web page: http://www.bus.miami.edu/faculty-and-research/academic-departments/economics/index.html
More information through EDIRC
Asymmetric information; Dynamic mechanism design; Long-term contracts; Term life insurance; Sequential screening.;
Other versions of this item:
- Raphael Boleslavsky & Maher Said, 2013. "Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 1-34.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-CTA-2011-09-16 (Contract Theory & Applications)
- NEP-MIC-2011-09-16 (Microeconomics)
- NEP-ORE-2011-09-16 (Operations Research)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pascal Courty & Li Hao, 1997.
Economics Working Papers
224, Department of Economics and Business, Universitat Pompeu Fabra.
- Steven Matthews & John Moore, 1985.
"Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening,"
661, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Loginova, Oksana & Taylor, Curtis, 2003.
"Price Experimentation with Strategic Buyers,"
03-02, Duke University, Department of Economics.
- Krähmer, Daniel & Strausz, Roland, 2010. "Optimal Procurement Contracts with Preâ€“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.
- Dirk Bergemann & Juuso Valimaki, 2008.
"The Dynamic Pivot Mechanism,"
Cowles Foundation Discussion Papers
1672, Cowles Foundation for Research in Economics, Yale University.
- Dirk Bergemann & Juuso Valimaki, 2008. "The Dynamic Pivot Mechanism," Cowles Foundation Discussion Papers 1672R, Cowles Foundation for Research in Economics, Yale University, revised Dec 2009.
- Dirk Bergemann & Juuso Välimäki, 2008. "The Dynamic Pivot Mechanism," Levine's Working Paper Archive 122247000000002340, David K. Levine.
- Marco Battaglini, 2005.
"Long-Term Contracting with Markovian Consumers,"
American Economic Review,
American Economic Association, vol. 95(3), pages 637-658, June.
- Chifeng Dai & Tracy R. Lewis & Giuseppe Lopomo, 2006.
"Delegating Management to Experts,"
RAND Journal of Economics,
The RAND Corporation, vol. 37(3), pages 503-520, Autumn.
- Alessandro Pavan, 2007.
"Long Term Contracting in a Changing World,"
1493, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Andrzej Skrzypacz & Simon Board, 2011. "Revenue Management with Forward-Looking Buyers," 2011 Meeting Papers 87, Society for Economic Dynamics.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher Parmeter).
If references are entirely missing, you can add them using this form.