but who will monitor the monitor suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations what about the monitor s deviations to address this question i propose a contract that makes the monitor responsible for monitoring and thereby provides incentives even when the monitor s observations are not only private but costly too i also characterize exactly when such a contract can provide monitors with the right incentives to perform in doing so i emphasize virtual enforcement and suggest its implications for the theory of repeated games jel c78 d23 d82 d86

ex ante incentive efficient trading mechanisms without the private valuation restriction abstract the private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders this paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities and for bilateral trade markets establishes the impossibility of a first best solution across a class of trading problems employing uniform priors and linear valuation structures this paper also compares levels of market efficiency for varying numbers of traders

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

robustly coalition proof incentive mechanisms for public good provision are voting mechanisms and vice versa we study the relation between mechanism design and voting in public good provision if incentive mechanisms must satisfy conditions of robust coalition proofness as well as robust incentive compatibility the participants contributions to public good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another for a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold with more provision levels for the public good more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants willingness to pay the article thus provides a foundation for the use of voting mechanisms

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

foundations of dominant strategy mechanisms wilson 1987 criticizes applied game theory s reliance on common knowledge as sumptions in reaction to wilson s critique the recent literature of mechanism design has adopted the goal of finding detail free mechanisms in order to eliminate this re liance in practice this has meant restricting attention to simple mechanisms such as dominant strategy mechanisms however there has been little theoretical foundation for this approach in particular it is not clear the search for an optimal mechanism that does not rely on common knowledge assumption would lead to simpler mechanisms rather than more complicated ones this paper tries to fill the void in the context of an expected revenue maximizing auctioneer we investigate some foundations for using simple dominant strategy auctions

optimal contracts with public ex post information abstract we are concerned with the value of public ex post information about a seller s costs to an initially uninformed buyer we derive necessary and sufficient conditions for a public ex post signal s s that is correlated with the risk neutral seller s costs to render the initial information asymmetry inconsequential to the buyer the first best outcome for the buyer is shown to be feasible if 1 the dimension of s is at least that of or 2 the conditional likelihood function of s given is for one of its realizations sj a strictly increasing function of and more concave in than is the seller s cost function

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

efficiency and mechanisms with no regret can we always design a game form so that all its bayesian equilibrium outcomes are either interim individually rational efficient or interim envy free efficient in asymmetric information economies we show that the answer is no given that such games exist in complete information economies can this gap be filled by games that leak information endogenously without enlarging the equilibrium set we adopt two approaches first we introduce a theory of cheap play as a natural model of such games the second is an extreme approach that adopts an ex post viewpoint neither yields a possibility result information leakage does not recover efficiency this paper addresses the following question in any domain of asymmetric information economies is it always possible to design a game form so that all its equilibrium outcomes are either interim individually rational efficient or interim fair envy free efficient our first result is that with bayesian equilibrium as the solution concept we can never design such a game form in a wide domain of economies the impossibility result persists even if there were strong restrictions on the information structure guaranteeing incentive compatibility of all allocation rules from the nash implementation literature maskin 1977 hurwicz et al 1984 we know that such games exist in complete information economies our first result indicates the cost in terms of social welfare imposed on society by the presence of information asymmetry this raises a natural question can the gap between the positive results under complete information and the negative ones under incomplete information be bridged by devising game forms that leak information endogenously in an equilibrium of such a game the players optimality calculations are conditioned on the newly acquired information superficially it appears that such games may yield a solution to the problem of nonexistence of efficient mechanisms information leakage is a mixed blessing since typically it would require pre play communication which tends to enlarge the set of equilibria our negative findings using bayesian equilibrium were primarily due to the presence of too many equilibria in every conceivable game form clearly we need a game form that

dynamic yardstick mechanisms abstract this paper shows that the inability of principals to commit to long term contracts is irrelevant when dealing with several agents whose private information is correlated this sharply contrasts with the dynamics of contracting without such correlation the paper also explores what limitations on yardstick mechanisms can justify the use of long term contracts we found that the inability of a principal to commit not to renegotiate long term contracts is without consequence even if there is a bound on transfers that an agent can be asked to pay in contrast short term contracting fails to implement the commitment solution with constraints on transfers second absent current yardstick the possibility of using correlated mechanisms in the future allows the principal to implement the first best with a renegotiation proof long term contract whereas this cannot be achieved with short term contracting

approximation in mechanism design with interdependent values abstract this paper studies the revenue maximization problem in environments wherein buyers have interdependent values and correlated types we show that 1 when the system of feasible sets is a matroid and buyer valuations satisfy a single crossing condition the generalized vickrey clarke groves mechanisms with lazy reserves vcg l are ex post incentive compatible and ex post individually rational 2 if in addition the valuation distribution satisfies a generalized monotone hazard rate condition the vcg l mechanism with conditional monopoly reserves is approximately optimal then we construct an ascending auction that implements the truth telling equilibrium of a vcg l mechanism in ex post equilibrium finally we discuss the connection between the vcg l mechanisms and greedy algorithms studied in lehmann et al 2002 and deferred acceptance auctions studied in milgrom and segal 2014 and the impact of competition by proving a bulow and klemperer 1996 type result

an efficient dynamic auction for heterogeneous commodities this paper proposes a new dynamic design for auctioning multiple heterogeneous commodities generalizing earlier work that treated identical objects an auctioneer wishes to allocate one or more units of each of k heterogeneous commodities to n bidders the auctioneer announces a vector of current prices bidders report back quantities demanded at these prices and the auctioneer adjusts the prices units are credited to bidders at the current prices as their opponents demands decline and the process continues until every commodity market clears bidders rather than being required to behave as price takers are permitted to strategically exercise their market power nevertheless with pure private values the proposed auction yields walrasian equilibrium prices an efficient outcome results as from a vickrey clarke groves mechanism but bidders are only required to evaluate their demands along a one dimensional path of prices rather than reporting their utilities over the entire k dimensional consumption set the auction is also more transparent and potentially simpler for bidders to understand and has the advantage of assuring the privacy of the upper portions of bidders demands theoretically the new auction provides a new foundation for convergence to walrasian equilibrium in an exchange economy practically it provides an efficient method for simultaneously auctioning two or more related types of securities for example three month and six month treasury bills it is also potentially useful for auctioning multiple types of communications spectrum for example licenses for paired and unpaired spectrum

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

competition and the reform of incentive schemes in the regulated sector abstract we consider a regulation problem with complete contracting in a principal agent model with adverse selection and review within this model the various channels by which external competition parameters affect incentives within the regulated firm the channels are the principal s information the principal s objective function the agent s incentive constraint the agent s participation constraint we consider in particular a better information structure a threat of liquidation a fight for talent a more efficient private sector and the existence of better substitutes we characterize in each case the conditions under which the effect on incentives is positive

role of linking mechanisms in multitask agency with hidden information we investigate the adverse selection problem where a principal delegates multiple tasks to an agent we characterize the virtually implementable social choice functions by using the linking mechanism proposed by jackson and sonnenschein 2007 that restricts the message spaces the principal does not require any incentive wage schemes and can therefore avoid any information rent and welfare loss we show the resemblance between the functioning of this message space restriction and that of incentive wage schemes we also extend the results of the single agent model to the multi agent model

a dynamic perspective of internal fit in corporate venturing abstract managers of corporate parents and their ventures have long been faced with the question of how closely to tie the parent and venture a close connection may enable a venture to capitalize on the competencies and resources of the parent however venture autonomy could prevent corporate inertia and bureaucracy from constraining venture growth the lack of consensus on this issue leads us to the first of two complementary research questions that we address in this paper what is the effect of internal strategic fit between a corporate parent and its venture on venture performance we suggest that a tight fit is positively associated with venture performance because of the venture s access to its parent s resources managers and researchers alike have often observed that growing enterprises are dynamic entities in the case of corporate ventures this implies that the relationship between parent and venture evolves over time our second research question directly addresses this issue by asking does the relationship between a corporate parent and its venture s evolve over time and if so how we identify two dimensions of the fit between corporate parents and their ventures relational and economic a relational fit reflects organizational culture and structure while an economic fit is a function of the needs of the venture and the resources of the parent we develop a series of hypotheses and test them with survey data from 97 canadian corporate ventures for the purposes of this study we define success as the ability of a firm to meet internal milestones on schedule we find that the degree of fit between a corporate parent and its venture does affect the success of a venture and that success is associated with high levels of awareness commitment and connection further the relational dimension of the parent venture interface appears to have a greater association with venture success than does the economic dimension our data support the idea that the parent venture relationship is dynamic in nature as ventures in our sample generally lessened their economic connections with their parents as they matured or vice versa we did find however that the relational bonds remained more or less intact the exceptions to these general trends were an increasing emphasis on financial targets along with decreasing ceo involvement as ventures matured both of these findings make intuitive sense greater financial independence is accompanied by greater financial accountability and as a venture gains in both independence and accountability there is less need for the ceo to provide air cover these two issues aside the basic model of enduring relational ties and diminishing economic ties was supported as well the increasing accountability is consistent with our expectation that a close connection is preferable to high venture autonomy

designing a private industry government auctions with endogenous market structure abstract this paper considers government mechanisms for auctioning production rights in which both the winners and the market structure doupoly dual sourcing monopoly sole sourcing or government owned production are a function of the bids in designing the optimal mechanism the government considers the tradeoffs among consumer surplus producer surplus and revenue under incomplete information doupoly is implemented less frequently and government production more frequently than under complete information when bidders are symmetric the optimal mechanism can be implemented as a modified second price auction applications to privatization deregulation and defense procurement are discussed

information management in incentive problems we extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he choose an unobservable level of cost reducing effort concer

centralized and decentralized contracts in a moral hazard environment we study the optimal allocation of the contracting capacity in a moral hazard environment centralizing is superior when the principal is able to establish all the contracts with the agents simultaneously and she is able to monitor side contracting between the agents otherwise decentralizing can be a superior strategy we apply our results to a firm s decision on which outlets to franchise they suggest that franchising is more likely to occur the further the store is from headquarters the more isolated it is and in those activities where the risk is low this conclusion is consistent with empirical studies

the effectiveness of english auctions abstract we study the performance of the english auction under different assumptions about the seller s degree of bayesian sophistication we define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation total surplus we identify tight lower bounds on the effectiveness of the english auction for general private values environments and for private values environments where bidders valuations are non negatively correlated for example when the seller faces 12 bidders who the seller believes have non negatively correlated valuations whose expectations are at least as high as 60 of the maximal possible valuation an english auction with no reserve price generates an expected price that is more than 80 of the value of the object to the bidder with the highest valuation

inertia and incentives bridging organizational economics and organizational theory organizational theorists have long acknowledged the importance of the formal and informal incentives facing a firm s employees stressing that the political economy of a firm plays a major role in shaping organizational life and firm behavior yet the detailed study of incentive systems has traditionally been left in the hands of organizational economists with most organizational theorists focusing their attention on critical problems in culture network structure framing and so on in essence the social context in which economics and incentive systems are embedded we argue that this separation of domains is problematic the economics literature for example is unable to explain why organizations should find it difficult to change incentive structures in the face of environmental change while the organizational literature focuses heavily on the role of inertia as sources of organizational rigidity drawing on recent research on incentives in organizational economics and on cognition in organizational theory we build a framework for the analysis of incentives that highlights the ways in which incentives and cognition while being analytically distinct concepts are phenomenologically deeply intertwined we suggest that incentives and cognition coevolve so that organizational competencies or routines are as much about building knowledge of what should be rewarded as they are about what should be done we argue that this recognition has important implications for our understanding of organizational inertia in the face of environmental change and that it opens up important new areas for further research

patents and cumulative innovation causal evidence from the courts cumulative innovation is central to economic growth do patent rights facilitate or impede such follow on innovation this paper studies the effect of removing patent protection through court invalidation on the subsequent research related to the focal patent as measured by later citations we exploit random allocation of judges at the u s court of appeal for the federal circuit to control for the endogeneity of patent invalidation we find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent on average but the impact is highly heterogeneous patent rights appear to block follow on innovation only in the technology fields of computers electronics and medical instruments moreover the effect is entirely driven by invalidation of patents owned by large patentees that triggers entry of small innovators suggesting that patents may impede the democratization of innovation

tight revenue bounds with possibilistic beliefs and level k rationality mechanism design enables a social planner to obtain a desired outcome by leveraging the players rationality and their beliefs it is thus a fundamental but yet unproven intuition that the higher the level of rationality of the players the better the set of obtainable outcomes in this paper we prove this fundamental intuition for players with possibilistic beliefs a model long considered in epistemic game theory specifically we define a sequence of monotonically increasing revenue benchmarks for single good auctions g0 g1 g2 where each gi is defined over the players beliefs and g0 is the second highest valuation i e the revenue benchmark achieved by the second price mechanism we 1 construct a single interim individually rational auction mechanism that without any clue about the rationality level of the players guarantees revenue gk if all players have rationality levels k 1 and 2 prove that no such mechanism can guarantee revenue even close to gk when at least two players are at most level k rational

an efficient ascending bid auction for multiple objects when bidders exhibit multi unit demands standard auction methods generally yield inefficient outcomes this article proposes a new ascending bid auction for homogeneous goods such as treasury bills or telecommunications spectrum the auctioneer announces a price and bidders respond with quantities items are awarded at the current price whenever they are clinched and the price is incremented until the market clears with private values this dynamic auction yields the same outcome as the sealed bid vickrey auction but has advantages of simplicity and privacy preservation with interdependent values this auction may retain efficiency whereas the vickrey auction suffers from a generalized winner s curse

linear inequality methods to enforce partnerships under uncertainty an overview we review different generic conditions on stochastic outcome functions to enforce either efficient or nearly efficient partnerships their logical relationship is explored two kinds of conditions are considered however the property for an action profile to be compatible plays a crucial role in both kinds also two kinds of enforcement mechanisms are considered enforcement through utility transfers and enforcement through repetition

correlated information and mechanism design in models of asymmetric information possession of private information leads to rents for the possessors this induces mechanism designers to distort away from efficiency the authors show that this is an artifact of the presumption that information is independently distributed rent extraction in a large class of mechanism design games is analyzed and a necessary and sufficient condition for arbitrarily small rents to private information is provided additionally the two person bargaining game is shown to have an efficient solution under first order stochastic dominance and a hazard rate condition similar conditions allow full rent extraction in milgrom weber auctions

compensating corporate venture managers this article reports the results of a questionnaire survey addressed to ceos of fortune 500 companies concerning incentive practices for venture managers data was also collected for venture performance history in these companies highlights of the results are most companies are not providing different incentives for venture managers than for other managers companies that do and companies that do not provide special incentives seem to agree on the types of incentives which would promote improved venture performance which include milestone bonuses equity and or options in the new venture variable bonuses based on venture roi the primary obstacle to installing such incentives is reported by firms without special incentives in place to be concern about internal equity firms with special incentives already in place have less concern with this problem a moderate problem to such firms is difficulty in defining venture objectives there is no evidence from this study that special incentives for venture managers affected the outcome in venture performance when such performance was measured by the percentage of successes and failures about 50 success rate was reported by each group the article deals with these questions are performance incentives essential certainly not from the data in this sample but this was a head count of successes and failures a study of overall economic performance might yield a different result one expensive failure can wipe out the gains from many small successes are the incentives reported effective obviously not enough to show a difference between those who use them and those who don t analysis of the incentive elements used and the earnings limits imposed suggest that the special incentives are not particularly special nor very much of an incentive further the most common incentive reported based on venture roi fails to consider the time period usually required to achieve a positive roi and the many changes of management which occur during that period what criteria should be used for designing an incentive program for venture managers recognition of the probability of management change incentives which promote early identification of need for change of direction or to abort focus on event completion milestones rather than the calendar the relationship of reward potential to risk potential including job security and actual financial risk by the venture manager achievability and simplicity are factors to be considered what kind of financial incentives might be included in incentive design depending on the life cycle stage of the venture fixed and variable bonuses options for equity or shadow equity in the venture itself actual equity in the new venture and to a lesser extent salary increases and equity or equity options in the parent are suggested how can the obstacles to installation of performance incentives for venture managers be reduced to reduce perception of internal inequity relating potential risk to potential reward and extending performance incentives to other managers is suggested the problem of defining venture objectives as an obstacle is instantly solved as an incentive issue by making ownership possibility a reality for venture management especially with financial investment required by venture management

an optimal auction for complements abstract this paper considers the optimal selling mechanism for complementary items when buyers are perfectly symmetric the optimal procedure is to bundle the items and run a standard auction in general however bundling the items is not necessarily desirable and the standard auctions do not maximize revenue moreover the optimal auction allocation may not be socially efficient since the auction must discriminate against bidders who have strong incentives to misrepresent their true preferences journal of economic literature classification number d44

the effect of organizational context on entrepreneurial strategies in franchising abstract franchising systems play a vital role in the creation of new jobs and economic development although the role of the franchisor as entrepreneur is generally assumed there has been limited research on the conduct of entrepreneurial activities in the franchising system as a whole in particular researchers and practitioners need to better understand the influences of organizational context on entrepreneurial activities system wide the research reported in this article examines the influences of the organizational context of the franchisor on the entrepreneurial strategies of franchisors their innovation efforts and franchisor support of entrepreneurial activities by franchisees specifically this study examines how the organizational context variables of size age of the franchise its growth rate both absolute and relative and time in franchising affect franchisee perceptions of entrepreneurial strategies of their parent franchisor their innovation efforts and franchisor managerial support for entrepreneurial activity and innovation by the franchisee franchisee perceptions of their parent franchisors entrepreneurial strategies were assessed with respect to four dimensions identified in previous research as central to an entrepreneurial orientation low concern for stability willingness to take risks aggressiveness in competition and proactiveness in seeking new opportunities innovation by franchisors was measured with respect to introduction of new products and techniques drawing on research that emphasizes the importance of instituting special organizational devices and rewards and recognition systems for promoting entrepreneurial activity franchisor support for franchisee entrepreneurial activity and innovation e g the development of new products and services new techniques to improve customer service was measured by the importance franchisees assigned to the use of a franchise council the recognition of new ideas at the annual meeting of the franchise system and the presence at franchisor headquarters of a champion for innovation consistent with other studies examining the influence of organizational context it was hypothesized that organizational size and age would be negatively related to franchisee assessments of entrepreneurial strategies the introduction of new products and techniques and franchisor managerial support for franchisee entrepreneurial activity and innovation in contrast rapid growth was hypothesized to be positively associated with entrepreneurial strategies and support for franchisee innovation no hypotheses were proposed with respect to time in franchising results of the study showed as hypothesized that franchisor size was associated with a concern for stability and strategies that were risk averse cooperative and reactive rather than proactive however size was positively associated with the frequent introduction of new products and also positively related to franchisor support for franchisee innovation contrary to expectations age was positively associated with entrepreneurial strategies including a low concern for stability and an aggressive style of competition in addition age was positively associated with the introduction of both new products and new techniques relative growth rather than an absolute rate of growth was associated with all of the entrepreneurial strategies except risk taking as well as with the frequent introduction of new products although no hypotheses were proposed for time in franchising the findings show that it is associated with a greater concern for stability as well as the infrequent introduction of new products and techniques the findings from this study suggest that franchisors need to institute measures to counteract the potentially deleterious influences of franchise system size on the entrepreneurial orientation within their franchising systems it also suggests the resources of a large organization need to be combined with the flexibility of smaller units for competitive advantage entrepreneurial activity by franchisors and franchisees implies a partnership in adapting to the environment and can provide a competitive advantage the challenge for franchisors will be managing new ideas from the field and adapting to a competitive environment while at the same time preserving the integrity of the franchising system

vertical contracting with informational opportunism we consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts we highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship we characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints those constraints limit the manufacturer s ability to use yardstick competition among retailers they simplify contracts and restore a rent efficiency trade off even with correlated information we show that sell out contracts are optimal under a wide range of circumstances

group buying on the web a comparison of price discovery mechanisms web based group buying mechanisms are being widely used for both business to business b2b and business to consumer b2c transactions we survey currently operational online group buying markets and then study this phenomenon using analytical models we build on the literatures in information economics and operations management in our analytical model of a monopolist offering web based group buying under different kinds of demand uncertainty we derive the monopolist s optimal group buying schedule under varying conditions of heterogeneity in the demand regimes and compare its profits with those that obtain under the more conventional posted price mechanism we further study the impact ofproduction postponement by endogenizing the timing of the pricing and production decisions in a two stage game between the monopolist and buyers our results have implications for firms choice of price discovery mechanisms in e markets and for the scheduling of production and pricing decisions in the presence and absence of scale economies of production

when does corporate venture capital investment create firm value abstract over the past decade billions of dollars have been invested by established companies in entrepreneurial ventures what is often referred to as corporate venture capital yet there is little systematic evidence that corporate venture capital investment creates value to investing firms scholars have suggested that established firms face underlying challenges when investing corporate venture capital namely structural deficiencies inherent in corporate venture capital may inhibit financial gains however firm value may still be created as a result of other benefits from investing primarily providing a window onto novel technology in this paper we propose that corporate venture capital investment will create greater firm value when firms explicitly pursue corporate venture capital to harness novel technology using a panel of cvc investments we present evidence consistent with our proposition the findings are robust to various specifications and remain unchanged even after controlling for unobserved heterogeneity in investing firms our results have important implications for corporate venture capital in particular and technology strategy in general

incentives and the existence of pareto optimal revelation mechanisms abstract from the characterization of strongly and bayesian incentive compatible paretooptimal mechanisms with transferable utilities we derive the following results if there are only two types per individual then a strongly incentive compatible paretooptimal mechanism exists if there are only two individuals with more than three types then there are sets of beliefs open in the class of all beliefs for which no bayesian incentive compatible pareto optimal mechanism exists if there are more than two individuals then the class of beliefs for which such mechanisms exist is open and dense in the class of all beliefs

learning about the future and dynamic efficiency we analyze the conditions under which an efficient allocation of resources is achievable in a dynamic private values setting where the designer gradually learns about the distribution of agents values as an application consider the sequential allocation of scarce spectrum to emerg ing technologies whenever a new technology appears a benevolent designer is faced with a problem should he allocate a valuable chunk of spectrum right now while forfeiting for a long period of time the option of allocating it to a possibly superior future technology it makes sense to assume here that current firms have a better knowledge of their technological prow ess than the designer and that the designer s assessment of future technological possibilities is improved by observing the current technology if technology owners are strategic we show below that the learning process about the future disturbs the ability to extract the information necessary for efficient decision making another good example is hiring by an organization that fills positions at different hierarchy levels over time while all candidates prefer higher level positions some aspect of their ability to perform the needed tasks at each level is privately known to the candidates if contracts with current employees are difficult to adjust the designer must carefully compare the quality of present candidates which can serve as a signal about the market to the expected quality of candidates that may become available in the future finally consider a firm allocating franchises in a country where it did not operate before and where contractual clauses or other impediments prevent reallocation during a significant period of time local potential franchisees may have some superior information regarding future prof itability in the respective market and hence the elicitation of private information is crucial for a franchisor that is supposed to get a share of the future profits

optimal use of correlated information in mechanism design when full surplus extraction may be impossible we study the mechanism design problem when the principal can condition the agent s transfers on the realization of ex post signals that are correlated with the agent s types cremer and mclean econometrica 53 1985 345 361 56 1988 1247 1257 mcafee and reny econometrica 60 2 1992 395 421 and riordan and sappington j econ theory 45 1988 189 199 studied situations where the signals are such that full surplus can be extracted from every agent type we study optimal utilization of the signals when there are fewer signals than types and the riordan and sappington conditions do not always hold for some special cases we show the level of surplus that can be extracted and identify the agent types who obtain rent

efficient auctions and interdependent types we consider the efficient allocation of a single good with interdependent values in a quasi linear environment we present an approach to modeling interdependent preferences distinguishing between payoff types and belief types and report a characterization of when the efficient allocation can be partially bayesian implemented on a finite type space the characterization can be used to unify a number of sufficient conditions for efficient partial implementation in this classical auction setting we report how a canonical language for discussing interdependent types developed in a more general setting by bergemann morris and takahashi 2011 applies in this setting and note by example that this canonical language will not allow us to distinguish some types in the payoff type belief type language

what s so entrepreneurial about intrapreneurs this paper discusses the determinants of becoming an intrapreneur individuals maximise their utility while deciding among three occupations independent entrepreneurship paid employment and intrapreneurship i show that intrapreneurs resemble employees rather than entrepreneurs specifically comparing the decision making of intrapreneurs to that of entrepreneurs the former are significantly more risk averse expect lower but less uncertain reward and are broadly endowed with a poorer set of entrepreneurial abilities despite having higher levels of human capital they fail to recognise business opportunities and have lower confidence in their entrepreneurial skills a distinction within the category of intrapreneurship based on the level of engagement and therefore the level of personal risks they bear adds to our understanding of intrapreneurship engaged intrapreneurs i e intrapreneurs that expect to acquire an ownership stake in the business unlike the rest of intrapreneurs share the attributes usually assumed to characterise entrepreneurs

decentralization externalities and efficiency in the competitive model externalities lead to inefficiencies and inefficiencies increase with the size of externalities however as argued by coase these problems may be mitigated in a decentralized system through voluntary coordination we show how coordination is limited by the combination of two factors respect for individual autonomy and the existence of private information together they imply that efficient outcomes can only be achieved through coordination when external effects are relatively large moreover there are instances in which coordination cannot yield any improvement at all despite common knowledge that social gains from agreement exist this occurs when external effects are relatively small and this may help to explain why coordination is so seldom observed in practice when improvements are possible we describe how simple subsidies can be used to implement second best solutions and explain why standard solutions such as pigovian taxes cannot be used possible extensions to issues arising in the structure of research joint ventures assumptions in the endogenous growth literature and the location of environmental hazards are also described

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

comarketing alliances should you contract on actions or outcomes comarketing alliances often involve multiple partners and a given partner s marketing efforts on behalf of the alliance can indirectly affect the demand of the other partners individual partners however can ignore the effects of such an externality and invest suboptimally to the detriment of the alliance this paper examines the relative effectiveness of outcome and action based contracts in providing the alliance partners with the incentives to invest appropriately we develop a mathematical model in which a focal firm e g sony contracts with two partners e g mcdonald s and old navy when each of these partners is privately informed about the impact of the alliance on its demand our analysis evaluates the strengths and weaknesses of outcome or output and action based or input based contracts in settings with varying levels of the demand externality we find that when there is either no externality or a relatively weak positive externality there is a strict preference for output based contracts that preference however is reversed with a sufficiently strong positive externality this paper explains the underlying rationale for these findings this paper was accepted by preyas desai marketing

extraction of surplus under adverse selection the case of insurance markets abstract we consider a principal agent setting with two types of risk averse agents with different abilities to avoid losses abilities types are characterized by two distributions f and g which are agents private information all agents have the same increasing and strictly concave utility function u under which g has a higher certainty equivalent in this environment we derive a characterization of pairs of distributions under which a first best outcome can be achieved or approximated we prove that a first best outcome can be achieved if and only if the distribution f is not absolutely continuous with respect to the distribution g if this condition is not satisfied the first best outcome can be approximated arbitrarily close if and only if the likelihood ratio df dg is unbounded journal of economic literature classification number d82

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

aggressiveness of response to new business opportunities following deregulation an empirical study of established financial firms abstract certain researchers have argued that industry structure constrains a firm s ability to respond to new business opportunities an important research question is to determine the relationship between organizational structure and strategy and a firm s response to new business opportunities this article measures how established financial firms respond to new business opportunities following deregulation and then compares these activities to accepted well known strategy typologies and structural arrangements using secondary data the new business venturing activities of the entire population of texas savings and loans n 270 was determined following an industry deregulation forty four of these savings and loans s ls then were identified as having a high level of venturing activity whereas 71 s ls were characterized by a low level of venturing activity a questionnaire describing specific well known strategies and structural arrangements was mailed to the top managers of these 115 s ls telephone interviews were obtained from 99 of the 115 s ls receiving questionnaires chief executive officers and executive vice presidents from 37 high level venturing activity s ls and 62 low level venturing activity s ls responded twenty eight of the 37 high level venturing activity s ls reported the use of a prospector type strategy whereas 52 of the 62 low level venturing activity s ls reported having a defender strategy this final sample of 80 s ls 28 52 was used in all subsequent data analyses total assets of the s ls sampled ranged from 10 2 million to 4 1 billion dollars a covariance

implementing the efficient allocation of pollution we provide simple mechanisms to implement the efficient allocation of pollution first assuming complete information across firms and then allowing for incomplete information both mechanisms operate by inducing firms to monitor one another using firms reports to determine pollution allotments and transfers the complete information mechanism determines a firm s transfer according to a linear pollution price set by other firms both mechanisms can be modified to be budget balanced in and out of equilibrium the complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies under a single crossing condition the same holds for the incomplete information mechanism this abstract was borrowed from another version of this item

pollution claim settlements under correlated information abstract agents have to decide whether a polluting plant will be operated or not agents disutility cost from pollution is privately known but correlated across agents incentive compatible mechanisms are characterized under the assumption that transfer payments are non negative the implementability constraint is similar to the independence case except that virtual utilities are diminished by a factor due to the correlation of agents types as correlation vanishes the implementability constraint approaches the implementability constraint of the independent types environment it is established that the free riding problem is relaxed as the number of agents increases with many agents ex post efficiency is achievable under ex ante budget balance journal of economic literature classification numbers d82 h41

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

service for equity arrangements untangling motives and conflicts abstract many professional service organizations have adopted a little understood contractual form service for equity based on in depth case studies of 12 major professional service providers with a combined experience of 179 equity for service deals this paper documents 18 intended and unintended consequences emanating from and expanding beyond agency theory of adopting such a contractual form six propositions are developed which speculate how these consequences categorized under client development service operations financial management and organizational behaviour affect long run performance assuming these propositions cannot be rejected through empirical analysis the paper also provides managerial guidance for effective implementation of equity for service arrangements

corporate venturing obstacles sources and solutions abstract there is a fundamental conflict between new venture and mature company management requirements as an enterprise evolves the focus for success shifts from sensing and seizing opportunity to protecting and utilizing the resources that have been acquired in surviving companies management practices change to accommodate this changing need the conflict arises when the mature company attempts to initiate internal new venture activities application of mature company practices to management of new corporate ventures is not only inappropriate but breeds failure to succeed with new ventures top corporate management must first understand the inherent differences in management needs for new ventures versus the mature organization and must then adapt a pluralistic management style that accommodates both needs this paper examines the rationale for ten establishment practices and the adverse effects they can have on new ventures from this analysis alternative entrepreneurial management practices are recommended the ten management practices examined are 1 enforce procedures to avoid mistakes 2 manage resources for efficiency and roi 3 control against plan 4 plan long term 5 manage functionally 6 avoid moves that risk the base business 7 protect the base business at all costs 8 judge new steps from prior experience 9 compensate uniformly and 10 promote compatible individuals some of the adverse effects of these practices include blockage of innovative solutions loss of competitive lead time entrepreneur failures high venture failure costs missed opportunities fluctuating venture strategies misread markets reduced motivation to take risks and loss of innovative employees recommended entrepreneurial management practices include restricting standard procedures to those appropriate for the venture controlling ventures by milestone planning rather than calendar budgets being more responsive to market feedback in adjusting plans focusing on critical issues for early determination of venture viability assessing and choosing affordable risks and making venturing a mainstream function of the business

public goods participation constraints and democracy a possibility theorem abstract it is well known that ex post efficient mechanisms for the provision of indivisible public goods are not interim individually rational however the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided this paper instead considers majority voting with uniform cost sharing as the relevant status quo efficient mechanisms may then exist which also satisfy all agents interim participation constraints in this case ex post inefficient voting mechanisms can be replaced by efficient ones without reducing any individual s expected utility intuitively agents with a low willingness to pay have to contribute more under majority rule than under an efficient mechanism with a balanced budget although this possibility theorem is not universal in the sense of schweizer 2006 an asymptotic possibility is obtained for certain type distributions

an efficient multi unit ascending auction we provide an ascending auction that yields an e cient outcome when there are many identical units for sale and bidders have interdependent values and downward sloping demand our ascending auction both extends and generalizes ausubel s 1997 and yields the same outcome as perry and reny s 2000 generalization of vickrey s 1961 sealed bid auction there are two key components to our auction bidders are permitted both to

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis