Investment and Screening Under Asymmetric Endogenous Information

Patrick Gonzalez ()

RAND Journal of Economics, 2004, vol. 35, issue 3, 502-519

Abstract: This article provides an analysis of screening contracts in a complete but imperfect information environment as opposed to the usual incomplete information (Bayesian) environment. An agent faces a hold-up situation while making a cost-reducing specific investment that is not observed by the principal. To prevent the hold-up, the agent randomizes his investment strategy and the principal offers a screening contract. The informational rents provided by the equilibrium contract finance the investment. For a large class of cost functions, the randomization is such that the marginal surplus follows a Power distribution.

Date: 2004
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Working Paper: Investment and Screening under Asymmetric Endogenous Information (2002)
Working Paper: Investment and Screening under Asymmetric Endogenous Information (2002)
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