Sequential Screening with Hidden Actions


        Topic£ºSequential Screening with Hidden Actions

¡¡¡¡Speaker£ºLIU Bin ,Chinese University of HongKong


¡¡¡¡Site£ºEMS B226

¡¡¡¡Abstract£ºOne common insight in the sequential screening literature (e.g., Courty and Li, 2000, and Eső and Szentes, 2007) is that the allocation (implemented in the second stage) is in general discriminatory over the first stage types. In this paper, we study how introducing a first-stage type-enhancing hidden action of the agent would affect the degree of discrimination at the optimum in a two-stage procurement setting where the agent can make costly unobservable investment to improve his first stage type, which is the distribution of his second-stage realized private cost of delivering the product. The principal's goal is to minimize the expected procurement cost. We find that the introduction of moral hazard unambiguously mitigates the allocative discrimination in the second stage. In particular, the second stage mechanism can even be non-discriminatory when the marginal cost of investment is small enough.