In a number of interesting environments, dynamic screening involves positive selection: in contrast with Coasian dynamics, only the most motivated remain over time. The paper provides conditions under which the principal's commitment optimum is time consistent and uses this result to derive testable predictions under permanent or transient shocks. It also identifies environments in which time consistency does not hold despite positive selection, and yet simple equilibrium characterizations can be obtained.
Repeated relationships; screening; positive selection; time consistency; shifting preferences; exit games;
- C72: Noncooperative Games
- D42: Monopoly
- D82: Asymmetric and Private Information • Mechanism Design
Econometrica, vol. 84, n. 4, July 2016, pp. 1291–1343