Two-Dimensional Sequential Screening

We study a sequential screening problem in which the information structure is characterized by neither first-order stochastic dominance (FOSD) nor mean-preserving spread (MPS). Specifically, we refer to a procurement contract with privately known mean and spread of cost distribution. The screening instrument is the probability of the transaction taking place. We outline a method for showing that only local incentive constraints in the contracting stage are binding. For any given type, the allocation depends on the average efficiency and cost of information within some group of types. We offer a procedure for comparing the solution with those arising under FOSD and MPS. Relative to sequential screening under FOSD, the activity is executed for higher ex post cost values, for all types; relative to sequential screening under MPS, it is executed for higher cost values for low-spread types, and lower costs for high-spread types