Optimal contract with private information on cost expectation and variability

Daniel Danau () and Annalisa Vinella

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: A multidimensional-and-sequential screening problem arises in a framework where the agent is privately informed about expected cost and cost variability and, subsequently, learns the realized cost as well. As the principal's marginal surplus function becomes less concave/more convex, the optimal mechanism reflects progressively stronger incentives to mimic less inefficient types, and to misrepresent the cost variability relative to the expected cost. When the principal's knowledge imperfection about the cost variability is sufficiently less important than that about the expected cost, quantities are pooled with respect to the former for a high-expected-cost agent. A low-expected-cost agent is not assigned the first-best output at least in some state of nature.

Keywords: Multidimensional screening; Sequential screening; Expected cost; Cost variability; Marginal surplus function (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-cta, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ged.univ-rennes1.fr/nuxeo/site/esupversion ... 39-af7e-6d9ce94caebb (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:201228

Ordering information: This working paper can be ordered from
CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France

Access Statistics for this paper

More papers in Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS CREM (UMR CNRS 6211) – Faculty of Economics, 7 place Hoche, 35065 RENNES Cedex. Contact information at EDIRC.
Bibliographic data for series maintained by GERMAIN Lucie ().