Template-Type: ReDIF-Paper 1.0
Title: Dynamic Screening with Verifiable Bankruptcy
Author-Name: Daniel Krähmer
Author-Email: kraehmer@hcm.uni-bonn.de
Author-Name: Roland Strausz
Author-Email: strauszr@huberlin.de
Classification-JEL: D82, H57
Keywords: Dynamic Screening, Bankruptcy, Verifiability, Mean Preserving Spread

Abstract: We consider a dynamic screening model, where the agent may go bankrupt due to, for
example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever
the agent makes a per period loss. This leads to less stringent truth-telling constraints than
those considered in the existing literature. We show that, for serially independent types, the
weaker constraints do not affect optimal contracting, however. Moreover, we develop a novel
method to study private values settings with continuous types and show that a regularity
condition that has analogues in the literature on multi-dimensional screening ensures that
the optimal contract is deterministic.

Note: 
Length: 31
Creation-Date: 2024-04
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp525
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_525