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Screening Ethics when Honest Agents Keep their Word

  • Ingela Alger

    ()

    (Boston College)

  • Regis Renault

    ()

    (GEMMA, Université de Caen)

We study the implications of honesty when it requires pre-commitment. Within a two-period hidden information problem, an agent learns his match with the assigned task in period 2 and, if honest, reveals it to the principal if he has committed to it. The principal may offer a menu of contracts to screen ethics. Both honest and dishonest agents are willing to misrepresent their ethics. The principal and dishonest agents benefit from an increased likelihood of honesty as long as honesty is likely enough. Honest agents always profit from ethics uncertainty if a good match is likely. This is also true if dishonesty is likely enough, in which case an honest receives the same surplus as a dishonest.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 562.

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Date of creation: 15 Jun 2003
Date of revision: 09 Nov 2004
Handle: RePEc:boc:bocoec:562
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  1. Ching-to Albert Ma & Ingela Alger, 1999. "Moral Hazard, Insurance and Some Collusion," FMG Discussion Papers dp318, Financial Markets Group.
  2. Forges, Françoise & Koessler, Frédéric, 2005. "Communication equilibria with partially verifiable types," Economics Papers from University Paris Dauphine 123456789/168, Paris Dauphine University.
  3. 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.
  4. Deneckere,R. & Severinov,S., 2001. "Mechanism design and communication costs," Working papers 23, Wisconsin Madison - Social Systems.
  5. Ingela Alger & Regis Renault, 2000. "Screening Ethics when Honest Agents Care about Fairness," Boston College Working Papers in Economics 489, Boston College Department of Economics, revised 09 Nov 2004.
  6. Kofman, Fred & Lawarree, Jacques, 1996. "On the optimality of allowing collusion," Journal of Public Economics, Elsevier, vol. 61(3), pages 383-407, September.
  7. 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.
  8. Daniel S. Nagin & James B. Rebitzer & Seth Sanders & Lowell J. Taylor, 2002. "Monitoring, Motivation, and Management: The Determinants of Opportunistic Behavior in a Field Experiment," American Economic Review, American Economic Association, vol. 92(4), pages 850-873, September.
  9. 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.
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