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Free-Riding And Delegation In Research Teams

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  • Nicolas Klein

    (University of Munich)

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    Abstract

    This paper analyzes a two-player game of strategic experimentation with three-armed exponential bandits, where players have to decide in continuous time how to distribute their endowment flow over the arms of their respective bandit. Players face replica bandits, with one arm that is safe in that it generates a known payoff, whereas the likelihood of the risky arms' yielding a positive payoff is initially unknown. It is common knowledge that the types of the two risky arms are perfectly negatively correlated. I show that the efficient policy is incentive-compatible if, and only if, the stakes are high enough. Moreover, learning will be complete in any Markov perfect equilibrium if, and only if, the stakes exceed a certain threshold.

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    File URL: http://www.economicdynamics.org/meetpapers/2009/paper_253.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 253.

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    Date of creation: 2009
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    Handle: RePEc:red:sed009:253

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    1. Bergin, James & MacLeod, W Bentley, 1993. "Continuous Time Repeated Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 21-37, February.
    2. Sven Rady & Godfrey Keller, 2007. "Strategic Experimentation with Poisson Bandits," 2007 Meeting Papers 332, Society for Economic Dynamics.
    3. Dirk Bergemann & Juuso Valimaki, 1996. "Experimentation in Markets," Discussion Papers 1220, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Dirk Bergemann & Juuso Valimaki, 1996. "Learning and Strategic Pricing," Cowles Foundation Discussion Papers 1113, Cowles Foundation for Research in Economics, Yale University.
    5. Patrick Bolton & Christopher Harris, 1999. "Strategic Experimentation," Econometrica, Econometric Society, vol. 67(2), pages 349-374, March.
    6. Godfrey Keller & Martin Cripps, 2003. "Strategic Experimentation with Exponential Bandits," Economics Series Working Papers 143, University of Oxford, Department of Economics.
    7. Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2007. "Social Learning in One-Arm Bandit Problems," Econometrica, Econometric Society, vol. 75(6), pages 1591-1611, November.
    8. Kaylan Chatterjee & Robert Evans, 2004. "Rivals' Search for Buried Treasure: Competition and Duplication in R&D," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 160-183, Spring.
    9. Godfrey Keller & Sven Rady, 2005. "Strategic Experimentation with Undiscounted Bandits," 2005 Meeting Papers 473, Society for Economic Dynamics.
    10. Camargo, Braz, 2007. "Good news and bad news in two-armed bandits," Journal of Economic Theory, Elsevier, vol. 135(1), pages 558-566, July.
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