The Benefits of Sequential Screening

Roland Strausz and Krähmer, Daniel

No 8629, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper considers the canonical sequential screening model and shows that when the agent has an ex post outside option, the principal does not benefit from eliciting the agent's information sequentially. Unlike in the standard model without ex post outside options, the optimal contract is static and conditions only on the agent's aggregate final information. The benefits of sequential screening in the standard model are therefore due to relaxed participation rather than relaxed incentive compatibility constraints. We argue that in the presence of ex post participation constraints, the classical, local approach fails to identify binding incentive constraints and develop a novel, inductive procedure to do so instead. The result extends to the multi-agent version of the problem.

Keywords: Dynamic mechanism design; Mirrlees approach; Participation constraints; Sequential screening (search for similar items in EconPapers)
JEL-codes: D82 H57 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-cta and nep-mic
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Citations: View citations in EconPapers (2)

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Working Paper: The Benefits of Sequential Screening (2011)
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