Ex Post Private Information and Monopolistic Screening

Abstract

This paper investigates how additional ex post private information by the agent affects the equilibrium outcome of the monopolistic screening model. In general, the principal always weakly benefits when the agent receives additional private information after the contracting stage. Instead, both the agent's equilibrium payoffs and allocative efficiency may, due to the principal's concerns about information rents, increase or decrease. Moreover, we obtain the result that optimal contracts may involve lying off–the–equilibrium path and show that this exacerbates bunching in the monopolistic screening problem.