From Bottom of the Barrel to Cream of the Crop: Sequential Screening with Positive Selection

Abstract

In a number of interesting environments, dynamic screening involves positive selection: in contrast with Coasian dynamics, only the most motivated remain over time. We pro- vide conditions under which the principal’s commitment solution is time consistent and use this result to derive testable predictions under permanent and transient publicly observ- able shocks. By contrast, under common agency, in partnerships or when the principal’s or the agent’s types are shifting, time consistency does not hold despite positive selection, but simple equilibrium characterizations can still be obtained.

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