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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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Suggested Citation

  • 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.
    • Handle: RePEc:cdl:econwp:qt4vb8z67z
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    Cited by:

    1. Jorge Andrés Ferrando Yanez, 2003. "Innovate AND Imitate ? : Dynamic Innovation, Patents, and Costly Imitation," Working Papers 2003-31, Center for Research in Economics and Statistics.

    More about this item

    Keywords

    common values; delegation; patents; information aggregation; Business; Social and Behavioral Sciences; Technology and Innovation;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General

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