Screening Through Coordination
66 Pages Posted: 11 Jan 2018
Date Written: July 15, 2017
In various screening environments agents have preferences that are independent of their type, making standard techniques infeasible. We show how a principal who faces multiple agents and whose preferences exhibit complementarities can benefit by coordinating her actions. Coordination delivers a payoff gain to the principal in states with many high-quality agents and accepts a payoff loss in states with many low-quality agents. Coordination sometimes results in strategic favoritism: the principal may favor agents who are unambiguously inferior. While this behavior is often attributed to biases, we show that a rational principal optimally pursues this strategy if complementarities are sufficiently high.
Keywords: Mechanism Design, Screening, Coordination, Supermodularity
JEL Classification: D82, D23
Suggested Citation: Suggested Citation