Project Screening with Tiered Evaluation

Abstract

We study a Bayesian game of two-sided incomplete information in which an agent, who owns a project of unknown quality, considers proposing it to an evaluator, who has the choice of whether or not to accept it. There exist two distinct tiers of evaluation that differ in the benefits they deliver to the agent upon acceptance of a project. The agent has to select the tier to which the project is submitted for review. Making a proposal incurs a cost on the agent in the form of a submission cost. We examine the effect of changes in the payoff parameters at the two tiers of evaluation on the efficiency of the equilibrium outcome. We show that changes in these parameters that are aimed at increasing the level of self-screening exerted by the agent do not necessarily have beneficial effects either on the quality of projects submitted for review or on the quality of projects that are implemented. From a methodological viewpoint, our paper proposes a novel method of performing comparative statics in games whose equilibria are defined by a system of equations with no closed-form solution.