Screening Ethics when Honest Agents Keep Their Word

Using the canonical principal-agent setting with adverse selection, we study the implications of honesty when it requires pre-commitment. Within a two-period hidden information problem, an agent learns his match with the assigned task in period 2 and, if honest, reveals it to the principal if he has committed to it. The principal may offer a menu of contracts to screen ethics. Both honest and dishonest agents are willing to misrepresent their ethics. Equilibrium ethics screening occurs if both honesty and a good match are sufficiently likely: the principal leaves a smaller rent to an honest while screening matches for a dishonest by inducing a message reversal by the dishonest. Otherwise, if dishonesty is likely, the principal offers the standard second-best contract, while if both dishonesty and a good match are unlikely, she offers the first-best contract, implying that no match screening occurs for a dishonest.