innovation and imitation in a duopoly in a duopoly where one firm has the idea for a non patentable innovation the expected profits from the innovation will not be a monotonic function of the cost of innovating furthermore a costly innovation may be undertaken where an inexpensive one would not have been all other things being equal

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

optimal contracts under adverse selection and moral hazard a continuous time approach this article presents a continuous time agency model in the presence of adverse selection and moral hazard with a risk averse agent and a risk neutral principal under the model setup we show that the optimal controls are constant over time and thus the optimal menu consists of contracts that are linear in the final outcome we also show that when a moral hazard problem adds to an adverse selection problem the monotonicity condition well known in the pure adverse selection literature needs to be modified to ensure the incentive compatibility for information revelation the model is applied to a few managerial compensation problems involving managerial project selection and capital budgeting decisions we argue that in the third best world the relationship between the volatility of the outcome and the sensitivity of the contract depends on interactions between the managerial cost and the firm s production functions contrary to conventional wisdom sometimes the higher the volatility the higher the sensitivity of the contract the firm receiving good news sometimes chooses safer projects or invests less than it does with bad news we also examine the effects of the observability of the volatility on corporate investment decisions copyright 2005 oxford university press

input subsidy programs in sub saharan africa a synthesis of recent evidence input subsidy programs have once again become a major plank of agricultural development strategies in africa ten african governments spend roughly us 1 billion annually on input subsidy programs isps amounting to 28 6 of their public expenditures on agriculture this article reviews the microlevel evidence on isps undertaken since the mid 2000s we examine the characteristics of subsidy beneficiaries crop response rates to fertilizer application and their influence on the performance of subsidy programs the impacts of subsidy programs on national fertilizer use and the development of commercial input distribution systems and finally the impact of isps on food price levels and poverty rates the weight of the evidence indicates that the costs of the programs generally outweigh their benefits findings from other developing areas with a higher proportion of crop area under irrigation and with lower fertilizer prices factors that should provide higher returns to fertilizer subsidies than in africa indicate that at least a partial reallocation of expenditures from fertilizer subsidies to r d and infrastructure would provide higher returns to agricultural growth and poverty reduction however because isps enable governments to demonstrate tangible support to constituents they are likely to remain on the african landscape for the foreseeable future hence the study identifies ways in which benefits can be enhanced through changes in implementation modalities and complementary investments within a holistic agricultural intensification strategy among the most important of these are efforts to reduce the crowding out of commercial fertilizer distribution systems and programs to improve soil fertility to enable farmers to use fertilizer more efficiently the challenges associated with achieving these gains are likely to be formidable

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

strategic investment and timing of entry the authors introduce competition over entry time into a sequential output choice model to show how profit differences will be dissipated this resolves a problem in the standard stackelberg model that the order of moves is exogenously specified yet an earlier position in the order is usually preferred to a later one if capacity costs are not too low the authors solution applies even if firms cannot commit to sell their entire output introducing positive capacity costs slightly modifies the static stackelberg results since endogenous cost asymmetries arise the framework therefore partially rehabilitates the stackelberg model copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

strategic investment under uncertainty a synthesis abstract investment is a central theme in economics finance and operational research traditionally the focus of analysis has been either on assessing the value of flexibility investment under uncertainty or on describing commitment effects in competitive settings industrial organization research contributions addressing the intersection of investment under uncertainty and industrial organization have become numerous in recent years in this paper we provide an overview aimed at categorizing and relating these research streams we highlight managerial insights concerning the nature of competitive advantage first versus second mover advantage the manner in which information is revealed firm heterogeneity capital increment size and the number of competing firms

technology diffusion and public policy a useful typology of technological change is provided by the schumpeterian trilogy invention the generation of new ideas innovation the development of those ideas through to the first marketing or use of a technology and diffusion the spread of new technology across its potential market until recently policy schemes in most oecd countries have tended to focus predominantly on the invention and innovation or science and r d end of this technology spectrum see e g limpens et al i 992 although it is generally realised that it is the process of diffusion or use of technology that creates productive potential and competitiveness policy initiatives have largely bypassed opportunities to improve the diffusion process if this may seem misplaced emphasis it does in fact reflect the state of the academic literature which is wide ranging and extensive as it relates to policies on r d but small and fragmented as regards policies on diffusion currently a gradual reorientation of policy direction toward diffusion seems to be taking place the us and uk governments for example have recently proposed major technology policy initiatives that despite differences in emphasis both stress the importance of creating an infrastructure conducive to a rapid spread of awareness and knowledge of innovations we argue that although sensible in themselves such policies may be too limited in scope and that a broader policy stance may be needed this paper has two main objectives the first is to provide an overview of why policy intervention in the diffusion process may be desirable and what form it might take this discussion is rather long since to the best of our knowledge there is no published systematic synthesis of the diffusion policy literature though see stoneman i987 for an earlier attempt the second aim is to look at actual diffusion policies and their impacts to make the task manageable we are restricting this paper to a discussion of the diffusion of new process technologies although similar issues apply to new consumer technologies these are not explicitly addressed we also consider diffusion policy only within the context of a given institutional and macroeconomic environment although it may well be that the supply of skilled manpower the nature of the capital market animal spirits and entrepreneurship fiscal and monetary policies will all impact upon the diffusion path improvements in these areas will also impact upon a whole host of other aspects of the economy s performance to use a plea for diffusion policy as a rationale for changes in such areas would be equivalent to the tail wagging the dog and thus they fall outside the remit of this paper

strategic timing of adoption of new technologies under uncertainty abstract in this paper we introduce experience effects into a duopoly game of timing of adoption of new technologies which exhibit exogenous technological progress departing from the existing literature with this model we obtain continuous and downward sloping reaction functions we find that a higher level of uncertainty increases the extent of dispersion between the equilibrium timings of adoption furthermore we find that the equilibrium timings are even more dispersed when the leader takes the follower s reaction into account when firm roles are made endogenous we find that if there is an incentive to lead follow the equilibrium timings are more less dispersed finally we show that it is possible for collusive adoption to improve welfare

learning and payoff externalities in an investment game abstract this paper examines the interplay of informational and payoff externalities in a two player irreversible investment game each player learns about the quality of his project by observing a private signal and the action of his opponent i characterize the unique symmetric equilibrium in a timing game that features a second mover advantage allowing for arbitrary correlation in project qualities despite private learning the game reduces to a stochastic war of attrition in contrast to the case of purely informational externalities all investments happen at the same real time instant irrespective of the sign of the correlation and beliefs never get trapped in a no learning region provided that the second mover advantage is sufficiently high

regulation and preemptive technology adoption two rival firms must decide if and when to adopt a new technology knowing how adoption costs decline over time and how profit flows vary with adoption patterns in many cases price and entry regulations beneficially slow technology adoption by making preemption strategies less attractive in some cases these regulations can so discourage a firm from preemption as to change the order in which firms adopt new technologies speeding one firm s adoption date and slowing the other s in the context of a particular scenario for cable and telephone companies adoption of new fiber optic technologies the case for lifting the cross ownership ban depends on the extent to which telephone companies are able to implement a superior technology reregulation of cable companies strengthens this case

first versus second mover advantage with information asymmetry about the profitability of new markets is it better to move first or second to innovate or to imitate we show that if one player s information about the profitability of new markets is only modestly superior the possibility of foreclosing the market can lead to a first mover advantage on the other hand more extreme information superiority can reverse this leading to a second mover advantage knowing more surely what is the best choice the better informed player wants to delay to keep his information private and the less informed player wants to delay to learn because of this more accurate information can actually lead to inefficiency by increasing the incentive to delay and exogenous costs of delay can aid efficiency by neutralizing that strategic incentive in fact in some circumstances a player may purposely coarsen his information to deter imitation

long term payoffs of near term low carbon deployment policies abstract recent climate change negotiations indicate that near term policies to address climate change are likely to vary across countries with countries employing a range of different policy options one option frequently mooted at the national level is to promote via policy the deployment of low carbon technologies promoting the deployment of low carbon technologies can involve a near term cost if such technologies are more expensive overall or require more upfront capital than emitting alternatives however it lowers future costs of emissions abatement by reducing emissions in the near term and potentially accelerating rates of improvement in targeted low carbon technologies we derive a globally cost effective near term international technology investment strategy to achieve a long term climate goal and show that it employs a diversified international technology investment portfolio across countries we also explore the degree to which independent national technology deployment policies align with collaboratively determined regimes we show that conditions exist under which there are substantial gains to international cooperation in the deployment of diverse low carbon technologies and also circumstances in which domestic outcomes align with the global outcome

adoption and diffusion of an innovation of uncertain profitability the argument has frequently been made that the pattern of diffusion associated with most new innovations will typically have certain characteristics a diffusion curve for an innovation is usually defined as the proportion of its potential users who have already adopted as a function of time measured from the first adoption many empirical studies by both economists and other social scientists have shown that diffusion curves nearly always have two distinct characteristics i they are s shaped the proportion adopted is an increasing function of time which is initially convex but eventually becomes concave and ii they tend to be right hand skewed the inflection point occurs at a time corresponding to a proportion adopted which is less than one half so that the function is concave over the greatest amount of time in fact this skewing is occasionally severe enough to make the diffusion curve appear concave everywhere the focus of most empirical studies of innovation diffusion has centered on identification of either the major determinants of the speed of diffusion or the characteristics of firms which determine how long they delay adoption the seminal contributions are griliches 6 study of hybrid corn and mansfield s 121 study of 12 industrial innovations these studies and most of the similar ones following conclude that diffusion is faster for innovations with higher profitability and that large firms tend to be the earliest adopters some studies e g mansfield 121 herregat 71 have attempted to ascertain

first movers non movers and social gains from subsidising entry in markets for nature based recreational goods abstract the importance of ecosystem services for mankind stresses the issue of identifying different institutional solutions to effectively secure their adequate provision much focus has been on services of the public good type and instruments like payments for environmental services we extend this work to consider the possible social gains from supporting development of new markets for nature based recreational goods which may alleviate negative externalities caused by congestion problems our three main questions are i why is there a lack of market development ii can there be social gains from intervention and supporting the development of such markets and iii if so then how could such intervention be best performed we use a two stage non cooperative bayesian simultaneous move game model and show that in spite of apparent potential first mover advantages in a developing market demand uncertainty and sunk costs may equally well result in widespread presence of non movers on the supplier side we show that social gains can be made from offering a subsidy towards the sunk costs analysing three possible subsidy schemes we show a that fixed costs may make rationing optimal b that sequential rationing does not necessarily dominate strict rationing because c the more subsidies are offered the larger each subsidy must be to induce participation and that d the longer a single agent on the market may keep market information to himself the better a non rationing scheme will perform relative to rationing schemes finally e subsidies for second mover entry may be optimal in some cases

strategic intrafirm innovation adoption and diffusion 1 introduction this paper addresses two empirical observations that are common in the extensive literature on innovation diffusion first a firm usually adopts an innovation over time not instantaneously that is there are intrafirm diffusions mansfield 1968 nasbeth and ray 1974 romeo 1975 stoneman 1981 1983 second the time path of an intrafirm diffusion has a predictable shape diffusion curves plot the extent of adoption against time and are generally s shaped that is they are initially convex reach an inflection point and then are concave thereafter often they are also skewed in that they are initially convex for less than half of the length of the diffusion this skewing can be so severe that the diffusion curve is essentially concave davies 1979 stoneman 1983 given the voluminous literature on innovation diffusion it is surprising that intrafirm diffusions have not received more attention with few exceptions noted below the theoretical literature assumes adoption is a discrete choice variable and so occurs instantaneously moreover empirical studies typically assume adoption occurs at the date of first use of the innovation by the firm to the extent intrafirm diffusions occur these studies clearly overestimate the speed at which the innovation is put into use and thus the speed at which its benefits accrue to the firm and society intrafirm diffusions are especially common in the case of capital embodied new process innovations because adoption involves adjustment costs as well as acquisition costs in a seminal study mansfield 1968 found that the time interval between 10 and 90 usage of diesel locomotives ranged from three to more than 14 years for firms in the u s railroad industry more recent examples abound most readers have undoubtedly experienced at least once the adoption of new computer equipment in their workplace from my own experience not all users are upgraded to the new equipment within a day a week or even a month hence in this paper i analyze the intrafirm diffusion of a new process innovation in a differential game model of an oligopoly the model s predictions are consistent with the empirical regularities noted above first an intrafirm diffusion occurs in equilibrium because the marginal cost of adoption is increasing in the rate of adoption it is not optimal to adopt instantaneously just as it is not optimal to adjust to the desired level of a stock instantaneously when adjustment costs are increasing at the margin second the equilibrium intrafirm diffusion curve is either s shaped or concave moreover this diffusion curve is more likely to be sshaped the more competitive the industry the larger the marginal cost of adoption or the preinnovation unit cost of production or the smaller the demand the analysis also shows a firm s diffusion is longer and so the extent of its adoption at any date is lower the more competitive the industry the larger the marginal cost of adoption or the pre innovation unit cost of production or the smaller the demand that is a diffusion is longer the smaller the incentive to adopt whether due to lower flow profit or higher adoption flow cost one surprising result is that an increase in the unit cost reduction from the innovation has an ambiguous effect on the intrafirm diffusion the reason is that there are two conflicting effects first as is obvious a larger cost reduction allows each firm to earn a larger flow profit at every date from the same rate of adoption however a more subtle effect is that it also allows the firm to earn the same flow of profit with a slower rate of adoption and so lower adoption costs that is the firms also have an incentive to spread out the diffusion over a longer period of time to save on adoption costs these results are important for two reasons first they show that diffusion curves are more likely to have an s shape for longer diffusions

the firm as a nexus of treaties part 1 knowledge its acquisition sharing and or asymmetry the participatory generation of information rents and the theory of the firm masahiko aoki common knowledge and the co ordination of economic activities jacques cremer profit sharing information and employment matti pohjola part 2 vertical integration and the strategic management of the enterprise what is vertical integration michael h riordan vertical integration transaction costs and learning by using kurt lundgren the firm as a nexus of internal and external contracts torger reve part 3 issues of labour organization the viability of worker ownership an economic perspective on the political structure of the firm henry hansmann intellectual skill and the role of employees as constituent members of large firms in contemporary japan kazuo koike the implicit contract for corporate law firm associates ex post opportunism and ex ante bonding robert h mooking part 4 finance and the political structure of the firm capital structure as a mechanism of control a comparison of financial systems erik berglof long term contracts in financial markets hakan lindgren the principle of external accountability in competitive markets herbert gintis union militancy and plant designs kar ove moene can transaction cost economics explain trade associations marc schneiberg and j rogers hollingsworth

timeliness and agglomeration an important element of the cost of distance is time taken in delivering final and intermediate goods we argue that time costs are qualitatively different from direct monetary costs such as freight charges the difference arises because of uncertainty unsynchronised deliveries can disrupt production and delivery time can force producers to order components before demand and cost uncertainties are resolved using several related models we show that this generates a hitherto unexplored mechanism for clustering if final assembly takes place in two locations and component production has increasing returns to scale then component production will tend to cluster around just one of the assembly plants

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

noisy observation in adverse selection models we consider a principal agent contracting problem under incomplete information where some of the agent s actions are imperfectly observable contracts take the form of reward schedules based on the noisy observation of the agent s action we first review situations where the principal can reach the same utility as in the absence of noise then we focus on the use of linear reward schedules which allow universal implementation i e implementation of a given mechanism for any unbiased noise of observation and on quadratic reward schedules which only require the knowledge of the variance of the noise we exhibit sufficient conditions under which linear reward schedules implement a given mechanism finally we characterize necessary conditions for a mechanism to be implementable under noisy observation by a linear schedule and by quadratic schedules we give the geometric intuition behind all results

the incentive value of inventory and cross training in modern manufacturing this paper shows that major components of modern manufacturing processes such as inventory management and cross training play a significant control role in our model workers possess information that is critical to efficient ongoing operations an organizational design that motivates workers to optimally apply this information leverages both the production schedule and worker management communication management s use of these controls results in work in process wip inventory that appears excessive from a pure job scheduling perspective but is optimal when control issues are considered empirical work testing pure job scheduling theories of modern manufacturing practices has yielded mixed results we provide control related interpretations for these empirical findings and also provide novel predictions regarding the link between inventory levels and the nature of operational information asymmetries overall our model highlights the importance of recognizing both control and scheduling issues when analyzing production processes

strategic incentives for innovations and market competition abstract we consider a principal agent model to provide a general analysis of how risk affects incentives of firms who invest in cost reducing r d and compete in the product market we specify the conditions under which higher risk reduces incentives of all firms we also examine the conditions under which an increase in risk may trigger opposite responses of rivals in the same industry some firms will strengthen while other firms will weaken the incentives provided to their agents this result holds regardless of the mode of competition in the product market cournot or bertrand as long as the rivals r d decisions are strategic substitutes it can generate new empirical implications and can provide an explanation for the lack of strong empirical support in the literature for a negative relationship between risk and incentives we also discuss policy implications regarding the effect of risk on the incentives to innovate and welfare

irreversible investment and r d spillovers in a dynamic duopoly investments in new production processes usually involve a significant amount of rd an increase in uncertainty delaying the equilibrium calls for higher subsidization rates third numerical simulations show that the spillover reduces the difference between the leader s and the follower s maximum value functions accordingly our model can help generate realistic market betas

innovation adoption and welfare under uncertainty the incentives of firms to adopt a new process need not coincide with maximum expected consumer surplus or social welfare if there is uncertainty before the process is adopted and if the only loss from failure is a fixed cost in some cases no firm will adopt an innovation likely to fail although expected welfare is maximized if one adopts in other cases both firms will adopt an innovation likely to succeed although expected welfare is maximized if one firm adopts this occurs because rivalry between firms leads them to adopt together when total expected profits are higher if one firm adopts copyright 1992 by blackwell publishing ltd

existence of optimal mechanisms in principal agent problems we provide general conditions under which principal agent problems with either one or multiple agents admit mechanisms that are optimal for the principal our results cover as special cases pure moral hazard and pure adverse selection we allow multidimensional types actions and signals as well as both financial and non financial rewards our results extend to situations in which there are ex ante or interim restrictions on the mechanism and allow the principal to have decisions in addition to choosing the agent s contract beyond measurability we require no a priori restrictions on the space of mechanisms it is not unusual for randomization to be necessary for optimality and so it should be and is permitted randomization also plays an essential role in our proof we also provide conditions under which some forms of randomization are unnecessary

reputations in the adoption of a new technology abstract this paper studies the effects of uncertainty on the timing of adoption of a new technology in a duopoly firms are uncertain of the innovative capabilities of their rivals and about the profitability of adoption these features lead to a richer and in some respects more plausible theory of adoption in which rents from delayed adoption are always realized and returns are not equalized across adoption times

salaries or piece rates on the endogenous matching of harvest workers and crops the objective of this paper is to determine whether the choice of payment schemes hourly vs piece rates is systematically related to the workers risk aversion and ability we derive the equilibrium relationship between agents risk aversion and ability and the power of incentives payment scheme in a market where many heterogeneous principals and agents are endogenously matched the equilibrium matching between principals and agents depends on the traits and is critical in determining the contract choice using confidential data from the national agricultural workers survey naws we find evidence of matching between agricultural workers and the riskiness of their jobs crops they harvest based on workers risk aversion and no matching based on ability when controlling for matching we find strong evidence that high risk averse workers choose hourly rates and low risk averse workers choose piece rates we also found that high ability types choose piece rates and low ability types choose hourly rates but the evidence is weaker jel j33 d82 q12

technological diffusion with social learning this paper attributes the slow diffusion of innovations to an informational externality in the adoption process the profitability of new technologies is uncertain but firing can learn progressively through observing the adoption experience of others given this prospect of social learning every firm would prefer that other firms adopt before it does in the absence of explicit coordination the firms could end up in a sequence of waiting contests this results in staggered adoptions even when all firms are ex ante identical the pace of diffusion is determined endogenously and shown to depend on the characteristics of the innovation copyright 1995 by blackwell publishing ltd

timing of investment under technological and revenue related uncertainties the effects of two forms of uncertainty on the timing of irreversible investment are considered technological uncertainty is modeled as a poisson arrival process that reduces the cost of investment while revenue uncertainty is modeled as a diffusion process technological uncertainty has no effect on the optimal investment policy when revenue uncertainty is absent however when combined with revenue uncertainty increased technological uncertainty makes investment less attractive relative to waiting the paper also makes a more general point in clarifying the difference in how diffusion type of uncertainty and unidirectional stochastic progress affect investment timing

modern input promotion in sub saharan africa insights from asian green revolution using case materials from four major cereal growing countries in asia bangladesh india indonesia and pakistan the article analyzes key aspects of agricultural input policies in asia results suggest that asian policies differ from the current wave of african input subsidy programs in three important ways i instead of focusing mostly on seed and chemical fertilizer input promotion in asia involved a package approach involving investments in agricultural rd ii farmers in three of four countries paid higher prices net taxed for fertilizer during the height of the green revolution suggesting that it was the profitability not the subsidy that was central to increasing fertilizer use and iii asian countries did not target input subsidies but given leakage and diversion estimates of targeted programs it is unclear whether targeting would have been more cost effective both continents have two challenges in common degradation of soil health and increasingly larger shares of public spending on input subsidies the first challenge calls for paying attentions to improving fertilizer use efficiency which is an achievable target with high pay off in the long run the other challenge is now a historical fact that is once introduced subsidies are hard to eliminate even if they no longer contribute to agricultural productivity growth

investment uncertainty and pre emption this paper examines irreversible investment in a project with uncertain returns when there is an advantage to being the first to invest and externalities to investing when others also do so we show that the possibility of pre emption can have significant qualitative and quantitative effects on the relationship between uncertainty and investment in a single agent real options model the trigger threshold for investment increases without bound as uncertainty grows in contrast the investment trigger of a leader faced with pre emption is bounded above as uncertainty increases in fact we show that under certain parameter values greater uncertainty can lead the leader to invest earlier these findings reinforce the importance of extending real options analysis to include strategic interactions between players applications to industry situations are also discussed

simple cost sharing contracts we extend rogerson s 2003 intriguing analysis of the performance of simple procurement contracts to consider settings where the supplier s innate production cost is not necessarily distributed uniformly although the simple contract that rogerson analyzes performs remarkably well when the smaller cost realizations are relatively likely it can perform poorly when the larger cost realizations are relatively likely we show that in all settings under consideration though a fairly simple pair of contracts one that involves linear cost sharing and one that involves full cost reimbursement can always secure more than 73 of the gain achieved with a fully optimal contract

second mover advantage and entry timing we describe a model of entry timing assuming that a second mover can benefit from observing the experience of a first mover we focus on how market attractiveness characteristics such as size and cost affect the time until first entry the effects depend on whether the number of participants is exogenous or endogenous in the former case a more attractive market leads to earlier entry in the latter case it leads to later entry treating the number of firms as an integer free entry leads to non monotone but testable effects of market attractiveness on entry timing

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

the equivalence of lending equilibria and signalling based insurance under asymmetric information i present a model in which a continuum of individuals have stochastic idiosyncratic income shocks complete insurance is physically feasible but unattainable due to an information asymmetry income shocks are observable only by the individuals receiving them any insurance institution must therefore rely on self reporting of income innovations two ways of achieving incentive compatible self reporting are presented the first is a debt market with an explicit lending restriction the second is an insurance contract that linearly filters a signal transmitted by individuals the two are then demonstrated to be identical equilibrium consumption fluctuates in a random walk which is inefficient given the physical potential for complete insurance but is efficient given the information constraints the results are complementary to those of green 1987 but permit more general stochastic processes of income to be analyzed serial correlation of income reduces the efficiency of the insurance

r d rivalry with licensing or imitation the authors study the rivalry between two firms to develop an innovation in a dynamic setting that allows for post development dissemination of the innovation such as licensing or imitation this dissemination may cause the noninnovating firm to benefit from the discovery when this occurs conventional results in the economics of r d no longer need apply they find that industry leaders will tend to develop minor innovations but will develop major innovations only if imitation is difficult copyright 1987 by american economic association

discussion of moral hazard and management control in just in time settings alles datar and lambert henceforth adl set out to explore the management control and motivational aspects of just in time jit inventory production systems within the agency theory paradigm specifically adl rely on the linear principal agent model developed by holmstrdm and milgrom 1987 1991 the contribution of this type of analysis is determined jointly by the technical novelty of the results and their successful application to a specific setting studied the following discussion is intended to aid in the evaluation of these aspects of adl s paper in section 2 i give a brief summary of the model followed by a discussion of the results in section 3 section 4 addresses whether the model and the results capture recognizable features of the specific setting studied i e issues of external validity finally some concluding remarks are provided in section 5

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

fertilizer subsidies and food self sufficiency in indonesia indonesia is a net importer of almost all of its staple foods national self sufficiency in food especially the main staple rice is a core objective of economic policy poverty reduction is also a core policy objective since the 1970s indonesia has used agricultural input subsidies especially on fertilizer to stimulate agricultural production largely in pursuit of the goal of rice self sufficiency more recently it has also used output protection especially in rice for the same purpose this article utilizes a multisectoral multihousehold general equilibrium model of the indonesian economy to study the trade offs between the goals of self sufficiency and poverty reduction when two alternative means are used to achieve them a fertilizer subsidy on the one hand and output protection on the other it does this by analyzing the aggregate and distributional effects of these two sets of policies and by comparing their effects with nonintervention the analysis shows that in terms of its effects on poverty a fertilizer subsidy can be a more effective instrument for achieving the goal of rice self sufficiency than final product import restrictions

contract based motivation for keeping records of a manager s reporting and budgeting history this paper analyzes the role of the agent s bankruptcy constraints in multiperiod principal agent models with asymmetric information conditions are provided under which commitment to a long term contract involving n rounds of investment improves upon repetition of n identical single period contracts further when the agent s reservation wage is sufficiently low the optimal contract is always long term keeping records of a manager s history of reporting activity facilitates contracting since optimal contracts may require a link between past reports and future investments over a duration of two or more periods

financing reputation and information disclosure quality in the chinese market abstractin this article we propose a theoretical model based on the reputation theory and hypothesize a positive relation between the information disclosure quality and the company s refinancing decision we collected data from the listed companies which refinances in shenzhen main board and sme board during 2006 2012 as a panel sample and tested the hypothesis empirically the results indicate that there exists a significant positive correction short term relation between refinancing decision and the information disclosure quality but in the long term the relationship between the information disclosure quality and refinancing decision is not significant

defending against rival innovation we analyze how an incumbent defends its competitive advantage with a focus on the under examined methods of actively defending against the threats posed by rival innovation we describe delineate and analyze the set of such defenses and their likely effects the set of such defenses differs substantially from many standard defenses such as those aimed at defeating the threat of imitation the further study of these pre emptive innovation defenses is important because these defenses are different and because they can substantially affect the sustainability of firm profits and the pace of different of types of innovation

do national level policies to promote low carbon technology deployment pay off for the investor countries abstract national level policies to promote deployment of low carbon technologies have been suggested and used as a means to reduce greenhouse gas emissions in the context of international climate change mitigation the long term benefits of such policies in the context of international climate change mitigation depend on their effects on near term emissions abatement and resultant long term technological change that will reduce abatement costs of achieving global mitigation goals there is also an argument that these policies might foster early mover advantages in international low carbon technology markets we first review the factors that could influence such benefits and use a global integrated assessment model to present an illustrative example to understand the potential magnitude of these benefits we find that reductions in long term abatement costs might not provide sufficient incentives to justify policies to promote the deployment of low carbon technologies in particular the emerging higher risk and currently expensive alternatives we also find that early mover advantages can potentially provide substantial benefits but only if these advantages are both strong and persistent our results suggest a role for international cooperation in low carbon technology deployment to address the existence of free riding opportunities in the context of global climate change mitigation

second mover advantages in the strategic adoption of new technology under uncertainty abstract this paper introduces technological uncertainty into a timing game of new technology adoption it is shown that the timing neither necessarily involves first mover advantages in precommitment equilibria reinganum review of economic studies xlviii 1981 395 405 nor rent equalization due to the threat of preemption fudenberg and tirole review of economic studies lii 1985 383 401 rather there may be second mover advantages because of informational spillovers furthermore the model predicts that the equilibrium payoffs will typically be discontinuous and non monotonic in the probability that the new technology is profitable a welfare analysis reveals several market failures and suggests that policy intervention should adequately depend on the nature of uncertainty and the rate of technological progress

on the diffusion of new technology a game theoretic approach this paper is an attempt at a rigorous albeit not exceedingly general analysis of the diffusion of new technology in particular consider an industry composed of two firms each using the current best practice technology the firms are assumed to be operating at nash equilibrium output levels generating a market price given demand and profit allocations when a cost reducing innovation is announced each firm must determine when if ever to adopt it based in part upon the discounted cost of implementing the new technology and in part upon the behavior of the rival firm if either firm adopts before the other it can expect to make substantial profits at the expense of the other firm on the other hand the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi fixed factors become more easily variable therefore although waiting costs the firm more in terms of foregone profits it may save money on the cost of purchasing the new technology thus the firm must weigh the costs and benefits of delaying adoption as well as take account of its rival s strategic behavior

dynamic patent licensing abstract this paper shows one way a fixed fee can dominate an auction if no one knows whether the innovation will succeed or not when it appears and if its life exceeds the life of the patent then selling one licence by fixed fee maximizes inventor profit for some probabilities of success the reason is a nonlicensee is better off when a rival buys a license because this reveals the nature of the innovation if it succeeds the nonlicensee can adopt in the future after the patent has expired this expected future gain can outweigh the expected loss during the life of the patent

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

impact of bayesian learning and externalities on strategic investment we investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns we examine a game theoretic duopoly investment model in which i a firm can learn about the profitability of the investment by observing the performance of the first mover and ii externalities exist between the investments of two firms we find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs in particular we find that contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move an increase in the rate of learning which tends to benefit the follower can hasten the first investment this paper was accepted by james smith decision analysis

world food prices and poverty incidence in a food exporting country a multihousehold general equilibrium analysis for thailand a multisectoral multihousehold general equilibrium model of the thai economy is used to analyze the implications of recent increases in international food prices higher food prices especially staple grains worsen poverty incidence in thailand despite the presence of large numbers of poor farmers many of whom benefit from higher prices the positive effect on the welfare of poor farmers is dominated by the negative effect on poor consumers of the recent price increases for rice sugar cassava maize soybeans urea and petroleum the increases in rice prices raise poverty incidence the most despite thailand being the world s largest rice exporter

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

dynamic competition and intellectual property rights in a model of product development we study innovation timing and socially optimal intellectual property rights iprs when firms facing market uncertainty invest strategically in product development if demand growth and volatility are high attrition occurs and iprs should ensure the cost of imitation attains a lower bound we identify if demand growth and volatility are low then provided that the private imitation incentive is socially excessive iprs should set the cost of imitation high enough to induce preemption and possibly winner take all preemption moreover the welfare achieved with optimal iprs is then greater with endogenous innovation than if firm roles are predetermined illustrating the importance of fostering dynamic competition in extensions we show how firms benefit from open standards takeovers have ambiguous welfare effects and simple licensing schemes are welfare improving

strategic investment in technological innovations abstract the aim of this paper is to determine the optimal timing of technology investment of a single firm in a duopoly framework as time passes different technologies are invented which after sometime become available for the firm to adopt the question here is not only when a firm should invest but also which technology should be adopted for different scenarios the optimal technology investment decision is determined outcomes range from pre emption equilibria to equilibria with second mover advantages

arm s length relationships we show that lowering the cost of acquisition of information that a principal obtains about the performance of an agent may make it more difficult for the principal to commit to threats hence it will weaken incentives and can therefore be counterproductive this phenomenon is explored in a framework where improving the quality of information makes a commitment not to renegotiate less credible applications to the theory of the firm are briefly explored

patent litigation as an information transmission mechanism patent litigation reveals important information about the validity of the contested patent to other potential entrants this paper explores the implications of such informational externalities for entry dynamics in the presence of multiple potential entrants the nature of the entry game can be one of either waiting or preemption depending on the degree of patent protection therefore the payoffs for the patentee and the initial imitator are discontinuous in the degree of patent protection furthermore strengthening intellectual property rights is not necessarily desirable for the patentee the analysis may also help explain the apparently puzzling practice of delaying patent suits copyright 1998 by american economic association

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

towards an economic theory of incentives in just in time manufacturing abstract just in time manufacturing is widely acknowledged as decreasing the costs of production but also as increasing the quality this is surprising we would expect that adding a constraint on the supplier that production be conducted at very specific times would induce a decrease in quality this paper argues that this paradox can be solved by noticing that the incentives of the buyer are changed by jit manufacturing he will be more willing to impose penalties on the supplier

endogenous leadership in a new market in this article i analyze strategic investment under uncertainty in a new market where firms face a tradeoff between commitment and flexibility the model predicts asymmetric equilibria under fairly general conditions even though firms are ex ante identical and have symmetric opportunities to enter the market in equilibrium one firm commits to early investment and the other firm follows a wait and see strategy in the ex post outcome firms end up with asymmetric sizes if the market profitability turns out close to or lower than expected firms end up in symmetric position if the market turns out highly profitable if uncertainty is small the model yields approximately stackelberg outcomes

managing local commons in developing economies an institutional approach abstract resource degradation has a profound influence on food sustainability of developing economies the breakdown of traditional institutions enhanced this problem and needs an institutional approach many of the traditional policies like regulation and taxation have failed to deliver the required benefits this paper uses principal agency theory to develop a criterion for incentive design three incentive structures are developed based on contractual agreements and restructured property rights that use the criterion two case studies were used to discuss the new institutional arrangement some practical implications of the mechanisms designed include linearity of incentive rules development of an effort reward matrix and gradual reinstatement of local governance