Screening Ethics When Honest Agents Care About Fairness

Boston College Economics Department Working Paper No. 489

43 Pages Posted: 10 Jan 2001

See all articles by Ingela Alger

Ingela Alger

University of Toulouse 1 - Toulouse School of Economics (TSE); CNRS UMR 5314 TSE-R; Institute for Advanced Study in Toulouse

Régis Renault

University of Cergy-Pontoise - THEMA

Date Written: November 2004

Abstract

We analyze a principal's ability to discriminate between honest and dishonest agents, who have private information about the circumstances of the exchange. Honest agents reveal circumstances truthfully as long as the mechanism is sufficiently fair: the probability that an equilibrium allocation is chosen by an agent who is lying should not be too large. Without intolerance for lying the agent is given proper incentives if dishonest and zero rent if honest. With even a small intolerance for lying the optimal mechanism is discontinuously altered. It may still involve ethics screening whereby some allocation chosen by a dishonest agent is never chosen by an honest agent. It happens either when the dishonest is overstating circumstances, or when the principal is forced to allow for some suboptimal announcements due to an excessive intolerance for lying. With limited intolerance for lying, ethics screening allows for doing better than in the standard setup where the agent is dishonest with certainty, even if honesty is unlikely. However, if intolerance for lying is too strong, the principal cannot improve upon the standard setup.

Keywords: ethics, honesty, adverse selection, screening

JEL Classification: D82

Suggested Citation

Alger, Ingela and Renault, Régis, Screening Ethics When Honest Agents Care About Fairness (November 2004). Boston College Economics Department Working Paper No. 489, Available at SSRN: https://ssrn.com/abstract=255390 or http://dx.doi.org/10.2139/ssrn.255390

Ingela Alger (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

CNRS UMR 5314 TSE-R ( email )

France

Institute for Advanced Study in Toulouse ( email )

31015 Toulouse, Cedex 6
France

Régis Renault

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France
+33 1 34 25 6173 (Phone)

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