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Optimality of sequential screening with multiple units and ex post participation constraints

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  • Krähmer, Daniel
  • Strausz, Roland

Abstract

We show that in sequential screening problems with ex post participation constraints, optimal contracts elicit the agent’s pay-off irrelevant ex ante information when the principal and agent can trade multiple units, in contrast to when they can trade a single unit only. The difference arises because with multiple units, the principal can price each unit differently, giving rise to a larger number of screening instruments. Optimal contracts implement output schedules that are not monotone in the initial information. We identify regularity conditions which ensure that non-monotone schedules are incentive compatible.

Suggested Citation

  • Krähmer, Daniel & Strausz, Roland, 2016. "Optimality of sequential screening with multiple units and ex post participation constraints," Economics Letters, Elsevier, vol. 142(C), pages 64-68.
    • Handle: RePEc:eee:ecolet:v:142:y:2016:i:c:p:64-68
    DOI: 10.1016/j.econlet.2016.03.010
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    References listed on IDEAS

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    1. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    2. Pascal Courty & Li Hao, 2000. "Sequential Screening," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 697-717.
    3. Chifeng Dai & Tracy R. Lewis & Giuseppe Lopomo, 2006. "Delegating management to experts," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 503-520, September.
    4. Daniel Krähmer & Roland Strausz, 2015. "Optimal Sales Contracts with Withdrawal Rights," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 762-790.
    5. Myerson, Roger B, 1986. "Multistage Games with Communication," Econometrica, Econometric Society, vol. 54(2), pages 323-358, March.
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    Cited by:

    1. Bergemann, Dirk & Castro, Francisco & Weintraub, Gabriel Y., 2020. "The scope of sequential screening with ex post participation constraints," Journal of Economic Theory, Elsevier, vol. 188(C).
    2. Papadimitriou, Christos & Pierrakos, George & Psomas, Alexandros & Rubinstein, Aviad, 2022. "On the complexity of dynamic mechanism design," Games and Economic Behavior, Elsevier, vol. 134(C), pages 399-427.
    3. Krähmer, Daniel & Strausz, Roland, 2017. "Sequential versus static screening: An equivalence result," Games and Economic Behavior, Elsevier, vol. 106(C), pages 317-328.

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    More about this item

    Keywords

    Sequential screening; Static screening; ex post participation constraints;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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