Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process
We 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, the realized values are also private information. We characterize a class of environments in which the profit-maximizing long-term contract offered by a monopolist takes an especially simple structure: we derive sufficient conditions on primitives under which the optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher realized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time, eventually leading to inefficiently early termination of the relationship. 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 process information in the initial period and then progressively screens across realized values so as to reduce the information rents paid in future periods. Copyright , Oxford University Press.
Volume (Year): 80 (2013)
Issue (Month): 1 ()
|Contact details of provider:|| |
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.:
- 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.
- Dirk Bergemann & Juuso Välimäki, 2008.
"The Dynamic Pivot Mechanism,"
Levine's Working Paper Archive
122247000000002340, David K. Levine.
- 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.
- Oksana Loginova & Curtis R. Taylor, 2005.
"Price Experimentation with Strategic Buyers,"
0509, Department of Economics, University of Missouri.
- Besanko, David, 1985. "Multi-period contracts between principal and agent with adverse selection," Economics Letters, Elsevier, vol. 17(1-2), pages 33-37.
- Pascal Courty & Li Hao, 2000.
Review of Economic Studies,
Oxford University Press, vol. 67(4), pages 697-717.
- 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.
- Marco Battaglini, 2005.
"Long-Term Contracting with Markovian Consumers,"
American Economic Review,
American Economic Association, vol. 95(3), pages 637-658, June.
- Alessandro Pavan, 2007.
"Long-Term Contracting in a Changing World,"
1456, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- repec:rje:randje:v:37:y:2006:3:p:503-520 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:80:y:2013:i:1:p:1-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.