Dynamic Screening with Verifiable Bankruptcy

Daniel Krähmer () and Roland Strausz

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We consider a dynamic screening model, where the agent may go bankrupt due to, for example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever the agent makes a per period loss. This leads to less stringent truth-telling constraints than those considered in the existing literature. We show that, for serially independent types, the weaker constraints do not affect optimal contracting, however. Moreover, we develop a novel method to study private values settings with continuous types and show that a regularity condition that has analogues in the literature on multi-dimensional screening ensures that the optimal contract is deterministic.

Keywords: Dynamic Screening; Bankruptcy; Verifiability; Mean Preserving Spread (search for similar items in EconPapers)
JEL-codes: D82 H57 (search for similar items in EconPapers)
Pages: 31
Date: 2024-04
New Economics Papers: this item is included in nep-cta and nep-mic
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Working Paper: Dynamic Screening with Verifiable Bankruptcy (2022)
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