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Dynamic Screening in a Long Term Relationship

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Date
2009
Author
Boleslavsky, Raphael
Advisor
Taylor, Curtis
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Abstract

I characterize optimal long term contracts offered by a monopolist to a buyer whose private valuation evolves according to a branching process with privately known transition probability. The optimal contract can be implemented in a simple way, and presents the buyer with a tradeoff between a high initial fixed fee and low future prices. In an interaction with a long time horizon, the relationship will terminate prematurely with probability close to one. Optimal mechanisms are quite different from models in which the transition probability is known, and the buyer's private information is his initial valuation. Optimal contracts resemble the structure of term life insurance contracts, and have features similar to actual interactions between retailers and suppliers.

Type
Dissertation
Department
Economics
Subject
Economics, Theory
Dynamic Mechanism Design
Long Term Contract
Mechanism Design
Permalink
https://hdl.handle.net/10161/1127
Citation
Boleslavsky, Raphael (2009). Dynamic Screening in a Long Term Relationship. Dissertation, Duke University. Retrieved from https://hdl.handle.net/10161/1127.
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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

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