Monopolistic Screening Under Learning By Doing
29 Pages Posted: 3 Dec 2007
Date Written: December 2007
Abstract
This paper investigates the design of incentives in a dynamic adverse selection framework when agents' production technologies display learning effects and agents' rate of learning is private knowledge. In a simple two-period model with full commitment available to the principal, we show that whether learning effects are over- or under-exploited crucially depends on whether learning effects increase or decrease the principals uncertainty about agents' costs of production. Hence, what drives the over- or under-exploitation of learning effects is whether more efficient agents also learn faster (so costs diverge through learning effects) or whether it is the less efficient agents who learn faster (so costs converge). Furthermore, we show that if divergence in costs through learning effects is strong enough, learning effects will not be exploited at all, in a sense to be made precise.
Keywords: Asymmetric Information, Learning by Doing
JEL Classification: D82, L14, L43, L51, O31
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Is Addiction "Rational"? Theory and Evidence
By Jonathan Gruber and Botond Koszegi
-
An Empirical Analysis of Cigarette Addiction
By Gary S. Becker, Michael Grossman, ...
-
The Effects of Government Regulation on Teenage Smoking
By Eugene M. Lewit, Douglas Coate, ...
-
Price, Tobacco Control Policies and Smoking Among Young Adults
By Frank J. Chaloupka and Henry Wechsler
-
Youth Smoking in the U.S.: Evidence and Implications
By Jonathan Gruber and Jonathan Zinman
-
An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels
By Michael Grossman, Frank J. Chaloupka, ...