The Benefits of Sequential Screening

Daniel Krähmer and Roland Strausz

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper considers the canonical sequential screening model and shows that when the agent has an expost outside option, the principal does not benefit from eliciting the agent’s information sequentially. Unlike in the standard model without expost 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 expost 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: Sequential screening; dynamic mechanism design; participation constraints; Mirrlees approach (search for similar items in EconPapers)
JEL-codes: D82 H57 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: The Benefits of Sequential Screening (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:363

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