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Costly Multidimensional Screening

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  • Frank Yang

Abstract

A screening instrument is costly if it is socially wasteful and productive otherwise. A principal screens an agent with multidimensional private information and quasilinear preferences that are additively separable across two components: a one-dimensional productive component and a multidimensional costly component. Can the principal improve upon simple one-dimensional mechanisms by also using the costly instruments? We show that if the agent has preferences between the two components that are positively correlated in a suitably defined sense, then simply screening the productive component is optimal. The result holds for general type and allocation spaces, and allows for nonlinear and interdependent valuations. We discuss applications to multiproduct pricing (including bundling, quality discrimination, and upgrade pricing), intertemporal price discrimination, and labor market screening.

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  • Frank Yang, 2021. "Costly Multidimensional Screening," Papers 2109.00487, arXiv.org, revised Aug 2022.
    • Handle: RePEc:arx:papers:2109.00487
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    References listed on IDEAS

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    Cited by:

    1. Frank Yang, 2022. "The Simple Economics of Optimal Bundling," Papers 2212.12623, arXiv.org, revised Apr 2023.

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