Optimality of sequential screening with multiple units and ex post participation constraints
نویسندگان
چکیده
We show that in sequential screening problems with ex post participation constraints, optimal contracts do screen sequentially 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, each marginal unit can be priced differently, giving rise to a larger number of screening instruments compared to the unit good case. This allows the principal to improve on the optimal static contract. Optimal contracts implement output schedules that are not monotone in the initial information.
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