SFB 504 discussion paper 98-33

Roman Inderst
Sonderforschungsbereich 504
L 13, 15, D-68131 Mannheim
inderst@sfb504.uni-mannheim.de

A Note on the Limited Value of Time for Screening


Abstract:
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 sorting variable. 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.
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Project:
C5 Moldovanu
Creation date:
1998-10-15
Publication Status
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