The Benefits of Sequential Screening
AbstractThis paper considers the canonical sequential screening model and shows that when the agent has an expost outside option, the principal does not benefit from eliciting the agentâ€™s information sequentially. Unlike in the standard model without expost outside options, the optimal contract is static and conditions only on the agentâ€™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 expost 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 multiâ€“agent version of the problem.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 363.
Date of creation: Oct 2011
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Sequential screening; dynamic mechanism design; participation constraints; Mirrlees approach;
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-29 (All new papers)
- NEP-CTA-2012-07-29 (Contract Theory & Applications)
- NEP-MIC-2012-07-29 (Microeconomics)
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.:
- Daniel Krähmer & Roland Strausz, 2011.
"Optimal Procurement Contracts with Pre-Project Planning,"
Review of Economic Studies,
Oxford University Press, vol. 78(3), pages 1015-1041.
- Daniel Kr�mer & Roland Strausz, 2009. "Optimal Procurement Contracts with Pre--Project Planning," Papers 036, Departmental Working Papers.
- 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.
- repec:rje:randje:v:37:y:2006:3:p:503-520 is not listed on IDEAS
- 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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