strategic information disclosure the case of multi attribute products with heterogeneous consumers we examine the incentives for firms to voluntarily disclose otherwise private information about quality attributes of differentiated products in particular we focus on the case of differentiated products with multiple attributes and consumers that are heterogeneous in their preferences over these attributes we show that there exist certain configurations of consumer preferences under which a firm producing a high quality product even with zero costs of disclosure may choose not to reveal the quality of its product this failure of firms to voluntarily disclose the quality of their products will arise when providing consumers with more information results in more elastic demands for these products which in turn triggers more intensive price competition and leads to lower prices and profits for all firms as a result the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory

determinants of inter firm technology licensing in the eu this article investigates the determinants of technology licensing focusing on how country specific characteristics affect technology holders incentives to sell their proprietary technologies through licensing alliances an empirical examination of licensing is done using a unique panel data set of licensing transactions involving companies in the eu the strength of intellectual property rights ipr protection the degree of economic freedom the level of country risk and the number of patent granted in the country are found to be important determinants of inter firm technology licensing in addition firms with prior independent experience as a licensor and public companies tend to license technology more

build or buy strategies in the local loop we provide a dynamic model to study how the presence of the option to buy the incumbent local exchange carrier s ilec facilities via local loop unbundling affects the competitive local exchange carriers clecs incentives to build alternative infrastructures we show that an unregulated incumbent sets a rental path for its local loop which delays technology adoption compared to the case in which there is no unbundling we also characterize the equilibrium rental path set by the unregulated incumbent it is prohibitively high at the initial phases when there is no effective threat of entry with alternative technologies and it is decreasing over time in later phases the decrease in the rental price follows the rise of the entrant s opportunity cost of leasing lines we also argue that neither allowing higher prices for unbundled elements over time nor setting a sunset clause would suffice to induce facility based competition by studying the unregulated ilecs decision regarding unbundling we challenge the implicit assumption behind the sunset clauses which is that the ilec would either deny unbundling or charge too high a price for its network elements in the absence of regulation we claim that the ilecs that initially resist unbundling requirements would tend to charge attractive access prices relative to the entrants alternatives for their infrastructure which become less essential over time this abstract was borrowed from another version of this item

software piracy an analysis of protection strategies software piracy by users is generally believed to harm both software firms through lower profits and buying customers through higher prices thus it is thought that perfect and costless technological protection would benefit both firms and consumers the model developed here suggests that in some circumstances even with significant piracy not protecting can be the best policy both raising firm profits and lowering selling prices key to the analysis is joining the presence of a positive network externality with the fact that piracy increases the total number of program users the network externality exists because consumers have an incentive to economize on post purchase learning and customization costs

litigation and settlement in patent infringement cases a patent grants its owner the right to sue intruders that have been identified the patentholder must then supervise the market and react in case of infringement his reaction may be to go to court to settle or to accept entry we investigate how intensive the monitoring effort should be and how it will influence the entry decision in a simultaneous game even if the penalty paid by the infringer in case of a finding of liability is high the patentholder may prefer a settlement to a trial the likelihood of entry may increase with the penalty in sequential games regardless who plays first entry occurs comparatively less often than in the simultaneous game

the shapley value of resale proof trades abstract this paper studies the shapley value of transferable utility games associated with resale proof trades of information is in the core iff there is exactly one minimal resale proof set a simple expression for is obtained for symmetric games and some bounds are given for in non symmetric cases

quality trade and growth abstract this paper analyzes the roles of product quality and increasing returns in international division of labor and economic development because the qualities of different intermediate goods are highly complementary in producing the quality of the final good a poor economy will choose to be in autarky if its average level of human capital is sufficiently low thus the heterogeneity of human capital may hamper the division of labor further by linking quality trade and growth this model simultaneously explains the east asian miracle and the empirical finding of conditional convergence

sharing productive knowledge in internally financed r d contests we examine the optimal design of two stage research and development r d joint ventures at the second stage researchers choose r d effort levels independently in an attempt to achieve an innovation in the first stage researchers have an opportunity to share endowments of productive knowledge initial pecuniary resources are limited so rewards for disclosing knowledge and succeeding at the second stage must be financed from successful innovation we derive conditions under which full sharing of knowledge and the socially desired levels of r d effort can be motivated and examine the optimal incentive structure when this ideal outcome cannot be implemented full sharing will always be motivated at the first stage but inefficient r d effort will be induced to foster information sharing

the effects of income tax rate uncertainty in a dynamic setting most discussion of income tax policy focuses on the expected efficiency or equity gains that could result from alterations in income tax codes often overlooked is the uncertainty that is generated when taxpayers anticipate a change in the tax laws for example over the last decade the income tax codes in the u s have undergone three significant revisions and while each of these revisions was accompanied by extensive debate concerning the effects of changes in particular statutory provisions the uncertainty generated by such rapid changes in the tax codes received little attention it is likely that the timing of these revisions as well as the revisions themselves were difficult to predict and consequently contributed to the uncertainty facing taxpayers while income tax codes may be subject to a wide variety of changes arguably the most consequential is a change in tax rates given a fixed tax base with a fixed tax base changes in statutory tax rates translate into changes in effective tax rates because changes in effective rates have such a pervasive influence on decision making it seems reasonable to expect that uncertainty regarding future effective tax rates may have serious consequences we explore the impact of this particular form of tax code uncertainty on an individual s saving and portfolio decision making in a dynamic setting throughout our analysis the tax base is unchanging so that we do not bother to distinguish between effective and statutory tax rates in this setting we assume that the timing of tax rate changes is uncertain and that if a change occurs the new tax rate is unpredictable we find that more less risk averse taxpayers will respond to an increase in the likelihood of a change in the tax code or an increase in the variability of future tax rates by increasing decreasing saving we are also able to characterize those situations in which an increase in the likelihood of a change in the tax code or an increase in the variability of future tax rates will depress risk taking there is a growing literature that examines the effects of income tax uncertainty for example auerbach and poterba 3 and bernheim 4 have dealt with uncertainty that alters a firm s taxable income and consequently the effective tax rate faced by the firm auerbach and hines 2 have analyzed corporate investment behavior in the u s by taking into account the possibility that investors anticipate future changes in tax laws models that examine the welfare consequences of uncertain tax rates have been developed by weiss 9 in a static setting and by bizer and judd 5 in a dynamic setting estimates of the welfare costs associated with statutory tax uncertainty in

possibility of relicensing and patent protection abstract we examine the effects of patent protection paying attention to its role of prohibiting relicensing we focus on two questions first whether does the innovator have an incentive of licensing the concealable easily kept secret if not licensed innovation in the case where patent protection is absent second what effects does patent protection have upon the innovator s payoff and the consumers welfare principal findings include the following in the case of nondrastic innovations in the sense of arrow the innovator has an incentive of licensing even without patent protection patent protection generally benefits the innovator but may cause damage to the consumers for large innovations for drastic innovations patent protection has no influence on licensing licensing never takes place regardless of whether it is provided or not

choosing the competition and patent licensing this article examines licensing as a means of choosing the competitors which a patentee monopolist will face in the period after the patent expires the queue of entrants consists of two firms which differ in their relative strengths as competitors for example by size or level of marginal cost by structuring the industry to be composed of weak competitors the incumbent is able to prolong its dominant position in the industry after the patent expires examples are presented in which the evidence suggests that choosing the competition was an important motivation of the licensor s behavior

an empirical investigation of the relative performance evaluation hypothesis the principal agent framework has become a widely used paradigm in accounting and economics for analyzing issues in performance evaluation management control and the design of incentive systems while recent work in experimental economics has begun to examine empirically some of the underlying assumptions and implications of agency theory see baiman and lewis 1989 and kirby forthcoming few precise hypotheses have been tested using real world or naturally occurring data one exception has been the empirical investigation of the relative performance evaluation rpe hypothesis agency theory suggests that there are benefits associated with evaluating agents on the basis of their relative performances when the agents performances are affected by a common shock term e g see diamond and verrecchia 1982 and holmstrom 1979 1982 specifically a relative performance based contract can remove the common shock term from an agent s performance which enables a better evaluation of the agent s actions

international evidence on the historical properties of business cycles we contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century although the magnitude of output fluctuations has varied across countries and periods relations among real quantities have been remarkably uniform properties of price levels however exhibit striking differences between periods inflation rates are more persistent after world war ii than before and price level fluctuations are typically procyclical before world war ii and countercyclical afterward fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods jel e32 e31

increasing returns product quality and international trade this paper examines the roles of quality and increasing returns in trade it implies that there is intense intra industry trade among economies with similar levels of per capita income which increases both the quality and the quantity of consumption however there may be no trade in manufactured goods between rich and poor countries because of the disparity in their optimal qualities of consumption and the high complementarity of the qualities of intermediate goods in production thus it helps explain the observed trade patterns moreover the model shows that a smaller country is more likely to engage in international trade

international technology transfer under potential threat of entry a cournot nash framework abstract this paper analyses the possibility of technology transfer from a technologically advanced foreign firm to a domestic firm of a less developed country when the product market is characterized by cournot nash competition the foreign firm is not allowed to enter the home market by a prohibitive tariff but the backward firm may not face any such resistance in the foreign markets this means that technology transfer under this situation involves potential threat of competition from the latecomer it is shown that by designing a suitable payment policy the host country government can induce the foreign firm to transfer the best technology however there are possible equilibria where worse than the best technologies are transferred

critical survey endogenous growth theory a critical assessment a critical assessment is made of endogenous growth theory from the perspective of recent developments within economics as a discipline these include its increasing mathematical formalisation its focus upon microfoundations the casual use of econometrics to test models and the incorporation of factors that have traditionally been outside mainstream economics it is found that the theory focuses upon market imperfections and technological progress in a variety of ways and reconstructs their impact upon the macroeconomy as a growth rather than as a level effect whilst the growth rate is endogenised this leads to the problem of multiple equilibria and extremely complex dynamics the generalisation from exogenous growth theory is however associated with even more extreme assumptions and analytical distance from the socioeconomic processes of growth itself copyright 2000 by oxford university press

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

the effects of openness trade orientation and human capital on total factor productivity abstract we study the effects of openness trade orientation and human capital on total factor productivity for a pooled sample of developed and developing countries total factor productivity emerges from a parsimonious specification of the aggregate production function potential determinants of total factor productivity include measures of openness trade orientation and human capital higher openness benefits total factor productivity outward oriented countries experience higher total factor productivity over and above the positive effect of openness human capital generally contributes positively to total factor productivity in poor countries however human capital interacts with openness to achieve a positive effect

endogenous sequencing of firm decisions abstract when firms are symmetrically informed a stackelberg leader prefers to be leader rather than a cournot duopolist however when the leader has superior information about demand the leader may earn lower ex ante profits than it would earn if it was choosing quantities simultaneously with the follower in this paper i give the firm with superior information the option of delaying its quantity decision until the decision period of the less informed firm so that decisions are made simultaneously surprisingly in the unique stable outcome the informed firm moves first regardless of its private information journal of economic literature classification numbers c72 c73 d82 l10

the other side of the trade off the impact of risk on executive compensation the principal agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance yet the exiting empirical evidence supporting it is quite wea

permanent income in general equilibrium abstract this paper reviews recent tests of the permanent income hypothesis this literature suggests that consumption is too sensitive to current income relative to the predictions of the usual partial equilibrium model it is then argued that in general equilibrium attempts to move along a consumption possibilities frontier exhibiting diminishing returns would naturally give rise to endogenous changes in interest rates creating a link between consumption and current income a fully specified general equilibrium example is introduced which does indeed exhibit the same excess sensitivity reported in the literature for precisely this reason

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

cross licensing of competing patents as a facilitating device this paper hypothesizes that when their products are imperfect substitutes firms can promote collusion by cross licensing their competing patents cross licensing is shown to enhance the degree of collusion achieved in a repeated game by credibly introducing the threat of increased rivalry in the market for each firm s product the paper then examines the consistency of the theory developed with the available evidence antitrust implications of the practice of cross licensing of competing patents are discussed

milestone payments or royalties contract design for r d licensing we study how innovators can optimally design licensing contracts when there is incomplete information on the licensee s valuation of the innovation and limited control over the licensee s development efforts a licensing contract typically contains an up front payment milestone payments at successful completion of a project phase and royalties on sales we use principal agent models to formulate the licensor s contracting problem and we find that under adverse selection the optimal contract structure changes with the licensee s valuation of the innovation as the licensee s valuation increases the licensor s optimal level of involvement in the development directly or through royalties should decrease only a risk averse licensor should include both up front and milestone payments moral hazard alone is not detrimental to the licensor s value but may create an additional value loss when combined with adverse selection our results inform managerial practice about the advantages and disadvantages of the different terms included in licensing contracts and recommend the optimal composition of the contract

the strategy of professional forecasting we develop and compare two theories of professional forecasters strategic behavior the first theory reputational cheap talk posits that forecasters endeavor to convince the market that they are well informed the market evaluates their forecasting talent on the basis of the forecasts and the realized state if the market expects forecasters to report their posterior expectations honestly then forecasts are shaded toward the prior mean with correct market expectations equilibrium forecasts are imprecise but not shaded the second theory posits that forecasters compete in a forecasting contest with pre specified rules in a winner take all contest equilibrium forecasts are excessively differentiated

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

unbundling the local loop abstract we study competition for high bandwidth services in the telecommunications industry by introducing the possibility of unbundling the local loop where leased lines permit the entrant to provide services without building up its own infrastructure we use a dynamic model of technology adoption and study the incentives of the entrant to lease loops and compete service based and or to build up a new and more efficient infrastructure and compete facility based given the rental price we show that the incumbent sets too low a rental price for its loops hence the entrant adopts the new technology too late from a social welfare perspective the distortion may appear not only on the timing of technology adoption but also on the type quality of the new technology to be adopted we also show that while regulating the rental price may suffice to achieve socially desirable outcomes a sunset clause does not improve social welfare

trust and the market for technology abstract conditional on the decision to enter the market for immature technology we test for the effects that trust proxied by the context in which the negotiating parties first met has on the likelihood that these negotiations are successful using survey responses from 860 university firm and firm firm technology transactions we find that trust matters parties with high levels of trust i e know each other from a previous business are between 6 and 23 per cent more likely to conclude a transaction compared with those with low levels of trust i e cold callers we also find that patents can effectively substitute for a lack of trust and that trust is more important in upstream stages basic or applied science

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

cooperation in r d the case of patent infringement agreements abstract this paper provides an insurance based argument behind patent infringement agreements pia such agreements constitute a form of cooperation in an otherwise non cooperative environment we develop a model where firms initially hold certain patents and undertake further r d by pursuing the latter they face a positive probability of infringing the patents held by the other a prior infringement agreement generates a binding contract so that such infringements would go unpunished if the infringing probability is not too low firms would have incentive to sign an agreement and sacrifice the monopoly option but this depends on the information structure about the patent infringement and search costs such a prior agreement is then compared and contrasted with a suitably designed ex post contract

patents vs trade secrets knowledge licensing and spillover we develop a model of two stage cumulative research and development rd yet the contracting parties choose the closed sale whenever the interim knowledge is more valuable and leakage is sufficiently high if the extent of leakage is lower more rus choose open sales generating a nonmonotonic relationship between the strength of intellectual property rights and aggregate r d expenditures and the overall likelihood of development by either du jel d23 o32 o34

strategic disclosure of meaningful information to rival i study a model of strategic disclosure of a private signal to a rival in the presence of a payoff externality in the model two agents forecast the unknown true state of a future period specifically the quality of the signal is also private information hence which quality of signal is revealed for which incentive is the main question of interest i show that even when disclosure is costly the revealing equilibrium where an agent voluntarily reveals his signal can exist and it should be a monotone equilibrium asymmetry between the penalty for an incorrect forecast and the reward for a correct forecast is a necessary condition for the existence of this revealing equilibrium if the penalty is larger than the reward the unique revealing equilibrium is a separating equilibrium where only the low quality signal is disclosed in order to induce the rival s imitation on the other hand if the reward is much larger than the penalty the unique revealing equilibrium is a pooling equilibrium where the signal is always revealed in order to induce the rival s deviation if the reward is not much larger than the penalty no revealing equilibrium is robust to a costly disclosure jel d81 d82

how to license intangible property we examine the optimal licensing strategy of a research lab selling to firms who are product market competitors we consider an independent lab as well as a research joint venture we show that 1 demands are interdependent and hence the standard price mechanism is not the profit maximizing licensing strategy 2 the seller s incentives to develop the innovation may be excessive 3 the seller s incentives to disseminate the innovation typically are too low 4 larger ventures are less likely to develop the innovation and more likely to restrict its dissemination in those cases where development occurs and 5 a downstream firm that is not a member of the research venture is worse off as a result of the innovation

trade reform policy uncertainty and the current account a non expected utility approach rapid and comprehensive reduction in barriers to international trade has often been followed by a sharp deterioration in the current account the macroeconomic counterpart of the deterioration has typically been a decline in private savings no clear response pattern has been observed for private investment this article observes anticipated policy reversal may explain a decline in private savings for the same reason gradual tariff reduction causes private savings to go up temporarily low tariffs lower the relative price of current goods in terms of future goods and thus tend to depress private savings an anticipated future tariff increase will increase current consumption if the intertemporal substitution elasticity is larger than 1 if consumers internalize the impact of future tariff revenues on their after tax income the savings impact will always be negative even for an intertemporal substitution elasticity below 1 in the standard expected utility approach risk aversion is low when intertemporal substitution is high because the relevant elasticities are each other s inverse

technology licensing r d and welfare this paper sets up a three stage r d technology licensing and output oligopoly game in which only one of the firms undertakes a cost reducing r d and may license the developed technology to the others by means of a two part tariff i e a per unit royalty and an upfront fee contract it is found with surprise that if the licensor firm s r d efficiency is high the availability of licensing subdues the firm s r d incentive leading to a lower social welfare level this result implies that a government has to be cautious when encouraging technology licensing among firms

optimal patents with compulsory licensing this paper examines the use of compulsory lincensing as a policy to combat the monopoly problem associated with the patent system it introduces the notion of an optimal patent one where the patent life and the licensing royalty rate are both determined optimally under certain simplifying assumptions it is shown that the optimal patent will have an indefinite life for both process and product innovations some preliminary calculations suggest that the use of compulsory licensing may lead to substantial welfare improvements even if the patent life is left unchanged at 17 years

obtaining strategic advantage from being imitated when can encouraging clones pay an important business strategy research theme concerns finding ways to minimize competition faced by the firm this paper however focuses on a different set of situations the model developed suggests that an innovator s best strategy may be to encourage clones of its product when a network externality is present key factors to consider in assessing whether encouraging cloning is the innovator s best strategy are 1 the benefit to be derived in terms of added user base contributed by the clone sales traded off against 2 the unit sales that will be lost to the clones these factors in turn depend upon the strength of the network effect and the degree to which the innovator s product quality is perceived by consumers to be superior to the clone s the model further suggests that both the innovator and clone earn their highest payoffs when the clone takes the lead in price setting i e when the clone establishes its own price by considering for each price it might set how the innovator will react to that price and the innovator as price follower responds to the price the clone chooses the paper demonstrates that the clone leader innovator follower situation represents the unique nash equilibrium in price setting strategies a central implication is that when operating in a network externality environment instead of a problem to be avoided clones may be valuable assets to an innovating firm building up the user base for the innovator s technology by bringing lower valuing consumers into the market which in turn makes the innovator s product more attractive to high and medium valuing purchasers thus when the above described conditions hold being cloned can be more profitable for an innovating firm than dominating the market alone

is consumption insufficiently sensitive to innovations in income deaton 1986 has noted that if income is a first order autoregressive process in first differences then a simple version of friedman s permanent income hypothesis spih implies that measured u s consumption is insufficiently sensitive to innovations in income this paper argues that this implication of the spih is a consequence of the fact that it ignores the role of the substitution effect in the consumption decision using a parametric version of the standard model of economic growth the paper shows that very small movements in interest rates are sufficient to induce an empirically plausible amount of consumption smoothing since an overall evaluation of the model s explanation for the observed smoothness of consumption requires examining its implications for other aspects of the data the paper also explores some of these

taxation and uncertainty while taxes may be certain u s tax policy has certainly not been furthermore intrinsic economic risk makes investment decisions risky therefore a serious examination of the effects of tax policy on dynamic economic behavior should consider both sources of uncertainty this paper presents a simple theoretical and computational model that can analyze both intrinsic risk and uncertain taxation furthermore it will be clear that these techniques will be useful for examining general problems of taxation and risk when studying the impact of past and or proposed tax changes one of two extreme assumptions are usually made either agents are perfectly aware of future tax policy a perfect foresight assumption or they always believe that no change will ever occur a myopic foresight assumption these two assumptions yield substantially different views of recent tax experience as alan auerbach and james hines 1987 demonstrate in a partial equilibrium context both are clearly wrong the myopic specification assumes that individuals believe at each point in time that the current tax law will surely continue forever even after they have been hit repeatedly with tax changes on the other hand it is absurd to think that in say 1977 a significant number of individuals perfectly knew the various tax changes that would occur during the following decade this paper analyzes a dynamic general equilibrium model wherein taxpayers understand the uncertainty in tax policy when making their deci

shirking sharing risk and shelving the role of university license contracts abstract in this paper we develop a theoretical model of university licensing to explain why university license contracts often include payment types that differ from the fixed fees and royalties typically examined by economists our findings suggest that milestone payments and annual payments are common because moral hazard risk sharing and adverse selection all play a role when embryonic inventions are licensed milestones address inventor moral hazard without the inefficiency inherent in royalties the potential for a licensee to shelve inventions is an adverse selection problem which can be addressed by annual fees if shelving is unintentional but may require an upfront fee if the firm licenses an invention with the intention to shelve it whether the licensing contract prevents shelving depends in part on the university credibly threatening to take the license back from a shelving firm this supports the rationale for bayh dole march in rights but also shows the need for the exercise of these rights can be obviated by contracts

optimal patenting and licensing of financial innovations recent court decisions starting with the state street decision in 1998 allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations this new patentability paradigm and the heterogeneity of characteristics associated with financial innovations pose an immediate decision problem for senior management what to patent we present a parsimonious decision framework that answers this question we show that for innovations with certain characteristics it is optimal not to patent even if the option of patenting and licensing is available our model emphasizes the role of embedded real options that arise from certain types of financial innovations the model provides an explanation of observed patenting behavior of financial institutions and the success of a wide class of innovations including swaps credit derivatives and pricing algorithms

tax rate uncertainty and the sensitivity of consumption to income in an overlapping generations model abstract a well documented feature of u s data is that the aggregate consumption is a smoother process than income an overlapping generations model with a time nonseparable utility function is developed to characterize the effect of income tax uncertainty on the degree of consumption smoothness the model predicts that an increased tax uncertainty combined with tax financed production externality makes the aggregate consumption smoother for a plausible range of intertemporal substitution in consumption a calibration experiment indicates that the observed long term smoothness of aggregate consumption is consistent with the model s predicted consumption process