Delegating Investment in a Common-Value Project
AbstractI 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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Date of creation: 01 Mar 1999
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Other versions of this item:
- Suzanne Scotchmer, 2000. "Delegating Investment in a Common-Value Project," Industrial Organization 9912001, EconWPA.
- Scotchmer, Suzanne, 1999. "Delegating Investment in a Common-Value Project," Department of Economics, Working Paper Series qt4vb8z67z, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- L0 - Industrial Organization - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-01-17 (All new papers)
- NEP-CFN-2000-01-17 (Corporate Finance)
- NEP-MIC-2000-01-17 (Microeconomics)
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