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Delegating Investment in a Common-Value Project

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  • Scotchmer, Suzanne

Abstract

I investigate the problem of delegating an investment effort when it is not known in advance which firm is most efficient, or whether the investment should be made at all. The motivating problem is that of commissioning R instead of relying on patent incentives. Firms have different private signals of a project's private (and social) value, and different costs of achieving it. I show that the two allocation problems of (i) making an efficient decision whether to invest, and (ii) delegating the investment to the least-cost firm can simultaneously be solved with no more profit dissipation than a procurement mechanism would require, assuming that the signals of value were known in advance.

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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt4vb8z67z.

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Date of creation: 01 Mar 1999
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Handle: RePEc:cdl:econwp:qt4vb8z67z

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Keywords: common values; delegation; patents; information aggregation; Business; Social and Behavioral Sciences; Technology and Innovation;

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References

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  1. McAfee, R Preston & McMillan, John & Reny, Philip J, 1989. "Extracting the Surplus in the Common-Value Auction," Econometrica, Econometric Society, vol. 57(6), pages 1451-59, November.
  2. Minehart, Deborah & Scotchmer, Suzanne, 1999. "Ex Post Regret and the Decentralized Sharing of Information," Games and Economic Behavior, Elsevier, vol. 27(1), pages 114-131, April.
  3. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  4. Gandal, Neil & Scotchmer, Suzanne, 1993. "Coordinating research through research joint ventures," Journal of Public Economics, Elsevier, vol. 51(2), pages 173-193, June.
  5. David Sappington, 1982. "Optimal Regulation of Research and Development under Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 354-368, Autumn.
  6. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  7. Michael Kremer, 1997. "Patent Buy-Outs: A Mechanism for Encouraging Innovation," NBER Working Papers 6304, National Bureau of Economic Research, Inc.
  8. Jean-Jaques Laffont & Jean Tirole, 1985. "Auctioning Incentive Contracts," Working papers 403, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
  10. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  11. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Michael Kremer, 1998. "Patent Buyouts: A Mechanism For Encouraging Innovation," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1137-1167, November.
  13. Francesca Cornelli & Mark Schankerman, 1999. "Patent Renewals and R&D Incentives," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 197-213, Summer.
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Cited by:
  1. Gallini, Nancy & Scotchmer, Suzanne, 2001. "Intellectual Property: When Is It the Best Incentive System?," Department of Economics, Working Paper Series qt9wx2c2hz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.

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