Dynamic contracting under adverse selection and renegotiation

Lucas Maestri

Journal of Economic Theory, 2017, vol. 171, issue C, 136-173

Abstract: We study the effects of renegotiation in an infinitely-repeated screening model with long-term contracts. We propose a simple and tractable recursive formulation to study equilibria in which the monopolist's profit is maximized after every history. We show that the monopolist sequentially screens high-type consumers and characterize second-degree price discrimination policies. The monopolist's ability to extract rent from high-type consumers by distorting the allocation of low-type consumers vanishes as all parties become more patient. As a result, all distortions disappear and the allocation becomes efficient.

Keywords: Dynamic contracting; Screening; Renegotiation (search for similar items in EconPapers)
JEL-codes: D42 D82 D86 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:171:y:2017:i:c:p:136-173

DOI: 10.1016/j.jet.2017.06.007

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