Dynamic Screening with Verifiable Bankruptcy

Daniel Krähmer and Roland Strausz
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Daniel Krähmer: University of Bonn

No 348, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

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 the weaker constraints do not af- fect optimal contracting in private values settings but may do so with interdependent values. Moreover, we develop a novel method to study private values settings with continuous types and identify a new regularity condition that 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)
Date: 2022-11-10
New Economics Papers: this item is included in nep-cta, nep-des and nep-mic
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Working Paper: Dynamic Screening with Verifiable Bankruptcy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:348

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