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Screening Ethics When Honest Agents Care About Fairness

  • Ingela Alger
  • Régis Renault

A principal faces an agent with private information who is either honest or dishonest. Honesty involves revealing private information truthfully if the probability that the equilibrium allocation chosen by an agent who lies is small enough. Even the slightest intolerance for lying prevents full ethics screening whereby the agent is given proper incentives if dishonest and zero rent if honest. Still, some partial ethics screening may allow for taking advantage of the potential honesty of the agent, even if honesty is unlikely. If intolerance for lying is strong, the standard approach that assumes a fully opportunistic agent is robust. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 47 (2006)
Issue (Month): 1 (02)
Pages: 59-85

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Handle: RePEc:ier:iecrev:v:47:y:2006:i:1:p:59-85
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  1. Ingela Alger & Ching-to Albert Ma, 2001. "Moral Hazard, Insurance, and Some Collusion," Boston College Working Papers in Economics 496, Boston College Department of Economics.
  2. Brian Erard & Jonathan S. Feinstein, 1994. "Honesty and Evasion in the Tax Compliance Game," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 1-19, Spring.
  3. Forges, Francoise & Koessler, Frederic, 2005. "Communication equilibria with partially verifiable types," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 793-811, November.
  4. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  5. Lacker, Jeffrey M & Weinberg, John A, 1989. "Optimal Contracts under Costly State Falsification," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1345-63, December.
  6. Ingela Alger & Regis Renault, 2003. "Screening Ethics when Honest Agents Keep their Word," Boston College Working Papers in Economics 562, Boston College Department of Economics, revised 09 Nov 2004.
  7. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  8. Green, Jerry R & Laffont, Jean-Jacques, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 447-56, July.
  9. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
  10. Keith J. Crocker & John Morgan, 1998. "Is Honesty the Best Policy? Curtailing Insurance Fraud through Optimal Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 355-375, April.
  11. Dawes, Robyn M & Thaler, Richard H, 1988. "Anomalies: Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 187-97, Summer.
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