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Competitive investing equilibrium under a procurement mechanism

  • Zhang, Heng
  • Yang, Ming
  • Bao, Jiye
  • Gong, Pu
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    This paper proposes a procurement mechanism for a research and development (R&D) project, in which the stochastic nature of R&D is incorporated, and the potential agents needed to invest prior to the agent are selected. The incentive contract aims to attract the investment of potential agents through a sharing rate. By establishing the stopping time game, an optimal investing strategy for potential agents is derived. Furthermore, the investment equilibria are discussed, and the conditions under which the equilibrium represents preemption or simultaneous investment are presented.

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    File URL: http://www.sciencedirect.com/science/article/pii/S026499931300028X
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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 31 (2013)
    Issue (Month): C ()
    Pages: 734-738

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    Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:734-738
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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    1. Dutta, P.K. & Rustichini, A., 1991. "A Theory of Stopping Time Games with Applications to Product Innovations and Asset Sales," Discussion Papers 1991_35, Columbia University, Department of Economics.
    2. Weeds, Helen, 2002. "Strategic Delay in a Real Options Model of R&D Competition," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 729-47, July.
    3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
    4. Bag, Parimal Kanti, 1997. "Optimal auction design and R&D," European Economic Review, Elsevier, vol. 41(9), pages 1655-1674, December.
    5. Thijssen, Jacco J.J., 2010. "Preemption in a real option game with a first mover advantage and player-specific uncertainty," Journal of Economic Theory, Elsevier, vol. 145(6), pages 2448-2462, November.
    6. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August.
    7. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
    8. Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
    9. Arozamena, Leandro & Cantillon, Estelle, 2001. "Investment Incentives in Procurement Auctions," CEPR Discussion Papers 2676, C.E.P.R. Discussion Papers.
    10. Nicolás Figueroa & Gonzalo Cisternas, 2007. "Sequential Procurement Auctions and Their Effect on Investment Decisions," Documentos de Trabajo 230, Centro de Economía Aplicada, Universidad de Chile.
    11. R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
    12. Rajeev K. Goel, 1999. "On contracting for uncertain R&D," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 99-106.
    13. repec:spr:compst:v:66:y:2007:i:3:p:531-544 is not listed on IDEAS
    14. Guofu Tan, 1996. "Optimal Procurement Mechanisms for an Informed Buyer," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 699-716, August.
    15. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
    16. Rogerson, William P., 1995. "Incentive models of the defense procurement process," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 12, pages 309-346 Elsevier.
    17. James J. Anton & Dennis A. Yao, 1987. "Second Sourcing and the Experience Curve: Price Competition in Defense Procurement," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 57-76, Spring.
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