Costly Multidimensional Screening

This paper studies when a principal can improve upon simple one-dimensional mechanisms by also deploying costly nonprice screening instruments — actions that are socially wasteful yet potentially informative about the agent’s private type.

The model features a principal and an agent with quasilinear, additively separable preferences across two components: (i) a productive component, where allocations lie in a one-dimensional compact space X and generate genuine surplus, and (ii) a costly component, where any allocation y in an arbitrary measurable space Y satisfies sB(y, θB) ≤ 0 — it destroys or at best does not create social surplus. The agent’s private type is multidimensional, θ = (θA, θB), drawn from a commonly known distribution. Both components allow for nonlinear valuations and, on the principal’s side, interdependent preferences.

Frank Yang | Macro Paper Warehouse

Costly Multidimensional Screening