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Screening Ethics when Honest Agents Care about Fairness

Ingela Alger () and Régis Renault ()

No 489, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We explore the potential for discriminating between honest and dishonest agents, when a principal faces an agent with private information about the circumstances of the exchange (good or bad). When honest agents reveal circumstances truthfully independently of the contract offered, the principal leaves a rent only to dishonest agents (even if honest agents are willing to lie about their ethics); the principal is able to screen between good and bad circumstances. In contrast, if honest behavior is conditional on the contract being fair, the principal cannot screen along the ethics dimension. If the probability that the agent is dishonest is large, the optimal mechanism is as if the agent were dishonest with certainty (standard second best). Otherwise, it is as if the agent were honest with certainty (first best). In the latter case, the principal is unable to screen between circumstances if the agent is dishonest.

Keywords: ethics; honesty; adverse selection; screening (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2000-11-30, Revised 2004-11-09
Note: This paper was previously circulated as "Screening among Agents with Heterogeneous Ethics".
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Journal Article: SCREENING ETHICS WHEN HONEST AGENTS CARE ABOUT FAIRNESS * (2006) Downloads
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