Article (Journal/Review)
Dynamic contracting under adverse selection and renegotiation
Fecha
2017Registro en:
0022-0531
10.1016/j.jet.2017.06.007
2-s2.0-85021846317
Autor
Maestri, Lucas Jóver
Institución
Resumen
We study the effects of renegotiation in an infinitely-repeated screening model with long-term contracts. We propose a simple and tractable recursive formulation to study equilibria in which the monopolist's profit is maximized after every history. We show that the monopolist sequentially screens high-type consumers and characterize second-degree price discrimination policies. The monopolist's ability to extract rent from high-type consumers by distorting the allocation of low-type consumers vanishes as all parties become more patient. As a result, all distortions disappear and the allocation becomes efficient. © 2017 Elsevier Inc.