Dynamic Screening with Differentially Informed Principals

Ahmed, Rafayal (2018): Dynamic Screening with Differentially Informed Principals.

Abstract

This paper studies a dynamic principal-agent model of adverse selection under competition among principals. Principals are ex-ante identical, but receive information about the agent independently which creates a setting of imperfect competition. I study how the agent's payoffs in this setting differ compared to the regular monopoly principal-agent case, and how that affects the agent's incentives to reveal information. The focus is on how the information structure affects the competition for the agent's services, and how the nature of competition in turn affects the agent's incentives. In a repeated setting with short term contracts and private observability of the agent's performance measure, the agent cannot be incentivized to fully reveal his private information as the familiar ratchet effect persists. Finally, I show that allowing voluntary information sharing among principals can benefit principals and improve welfare in general.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ratchet Effect, Principal-Agent Model, Signals.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory

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