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Strategic research funding

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  • Matteo Escud'e
  • Ludvig Sinander

Abstract

We study a dynamic game in which information arrives gradually as long as a principal funds research, and an agent takes an action in each period. In equilibrium, the principal's patience is the key determinant of her information provision: the lower her discount rate, the more eagerly she funds. When she is sufficiently patient, her information provision and value function are well-approximated by the 'Bayesian persuasion' model. If the conflict of interest is purely belief-based and information is valuable, then she provides full information if she is patient. We also obtain a sharp characterisation of the principal's value function. Our proofs rely on a novel dynamic programming principle rooted in the theory of viscosity solutions of differential equations.

Suggested Citation

  • Matteo Escud'e & Ludvig Sinander, 2019. "Strategic research funding," Papers 1903.09055, arXiv.org.
  • Handle: RePEc:arx:papers:1903.09055
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    References listed on IDEAS

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    1. Frug, Alexander, 2018. "Strategic gradual learning and information transmission," Journal of Economic Theory, Elsevier, vol. 177(C), pages 594-615.
    2. Isabelle Brocas & Juan D. Carrillo, 2007. "Influence through ignorance," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 931-947, December.
    3. Yves Achdou & Jiequn Han & Jean-Michel Lasry & Pierre-Louis Lions & Benjamin Moll, 2017. "Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach," NBER Working Papers 23732, National Bureau of Economic Research, Inc.
    4. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, vol. 57(5), pages 1171-1214, September.
    5. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    6. Emeric Henry & Marco Ottaviani, 2019. "Research and the Approval Process: The Organization of Persuasion," American Economic Review, American Economic Association, vol. 109(3), pages 911-955, March.
    7. Pei, Harry Di, 2015. "Communication with endogenous information acquisition," Journal of Economic Theory, Elsevier, vol. 160(C), pages 132-149.
    8. Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 949-987.
    9. John K.-H. Quah & Bruno Strulovici, 2013. "Discounting, Values, and Decisions," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 896-939.
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