Screening Through Coordination

Abstract

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