SFB 504 discussion paper
L 13, 15, D-68131 Mannheim
A Note on the Limited Value of Time for Screening
- We analyze a bargaining model with one-sided uncertainty where the uninformed party makes all offers. In difference to the literature
we allow contracts to include a variable in which the informed party's
utility satisfies a standard sorting condition. For instance, a union
on strike might offer to a firm with private information about its
profitability a sequence of contracts specifying wages and working
hours. We solve the model for the two-type case and find that for
sufficiently high discount factors delay is not used to screen among
types as this would fully erode the screening power of the additional
The analysis in this paper also complements the standard principal-agent
setting where attention is usually restricted to the case where the
(uninformed) principal can commit to a take-it-or-leave-it offer.
In contrast, the threat to walk away after rejection is not credible
with an infinite time horizon.
- C5 Moldovanu
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