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on Contract Theory and Applications |
| By: | Antelo, Manel; Antonio, Sampayo |
| Abstract: | This paper examines the licensing of an innovation—by a patent holder to one or more users—when the innovation’s value (high or low) is known, after the contract is signed, by each user. In this setup, we analyze the patent holder’s joint decision concerning the number of licenses and the type of contracts. Our first main finding is that, depending on how uncertain is the efficiency of users exploiting the innovation, both shut-down contracts and screening contracts can emerge in equilibrium. Second, shut-down contracts amount to fixed fees under exclusive licensing but are two-part contracts under non-exclusive licensing. Third, there is distorted production at the bottom of the innovation value’s distribution under exclusive licensing as well as distortion at both the bottom and the top of that distribution under non-exclusive licensing. Fourth, asymmetric information favors the latter (i.e., issuing multiple licenses) except when the patent holder uses a screening contract, since then the need to distort production at both the bottom and the top renders non-exclusive licensing less profitable. Our final result is that the number of licenses issued by the patent holder is more likely to maximize aggregate surplus under asymmetric information than under symmetric information. |
| Keywords: | exclusive and non-exclusive licensing, symmetric and asymmetric information, screening, fixed-fee and two-part contracts, welfare analysis |
| JEL: | D43 D82 L24 |
| Date: | 2017–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77252&r=cta |
| By: | Zubanov, Nick (University of Konstanz); Cadsby, Bram (University of Guelph); Song, Fei (Ryerson University) |
| Abstract: | We present a model and an experiment that show, in a very general setting, that effort choice under a given linear pay-for-performance contract depends on how the financial risk associated with the scheme interacts with effort. We find that, under a given contract, if risk increases with effort, risk-averse (loving) individuals exert less (more) effort. In contrast, when risk is independent of effort, risk preferences do not affect effort choice. Our findings complement the larger literature on selection into incentive pay by showing that lower effort exerted by the risk-averse under a given incentive contract is another type of behaviour toward risk. |
| Keywords: | incentives, effort, risk aversion |
| JEL: | M52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10542&r=cta |
| By: | Macchiavello, Rocco; Miquel-Florensa, Josepa |
| Abstract: | This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by significant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which firms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources. |
| Keywords: | Adaptation; Demand Uncertainty; relational contracts; Supply Chain; vertical integration |
| JEL: | D23 L14 L22 O12 Q13 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11874&r=cta |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Graduate School of Business, Columbia University); Gabriel Weintraub (Graduate School of Business, Stanford University) |
| Abstract: | We study the classic sequential screening problem under ex-post participation constraints. Thus the seller is required to satisfy buyers’ ex-post participation constraints. A leading example is the online display advertising market, in which publishers frequently cannot use up-front fees and instead use transaction-contingent fees. We establish when the optimal selling mechanism is static (buyers are not screened) or dynamic (buyers are screened), and obtain a full characterization of such contracts. We begin by analyzing our model within the leading case of exponential distributions with two types. We provide a necessary and sufficient condition for the optimality of the static contract. If the means of the two types are sufficiently close, then no screening is optimal. If they are sufficiently apart, then a dynamic contract becomes optimal. Importantly, the latter contract randomizes the low type buyer while giving a deterministic allocation to the high type. It also makes the low type worse-off and the high type better-off compared to the contract the seller would offer if he knew the buyer’s type. Our main result establishes a necessary and sufficient condition under which the static contract is optimal for general distributions. We show that when this condition fails, a dynamic contract that randomizes the low type buyer is optimal. |
| Keywords: | Sequential screening, Ex-post participation constraints, Static contract, Dynamic contract |
| JEL: | C72 D82 D83 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2078&r=cta |
| By: | Goerg, Sebastian J. (Florida State University); Kube, Sebastian (University of Bonn); Radbruch, Jonas (IZA) |
| Abstract: | Agents' decisions to exert effort depends on the provided incentives as well as the potential costs for doing so. So far most of the attention has been on the incentive side. However, our lab experiments underline that both the incentive and cost side can be used separately to shape work performance. In our experiment, subjects work on a real-effort task. Between treatments, we vary the incentive scheme used for compensating workers. Additionally, by varying the available outside options, we explore the role of implicit costs of effort in determining workers' performance. We observe that incentive contracts and implicit costs interact in a non-trivial manner. Performance reacts significantly to changes in implicit effort costs under low-powered piece-rate and target-based bonus contracts, but not under a high piece rate contract. In addition, comparisons between the incentive schemes depend crucially on the implicit costs. |
| Keywords: | workers' performance, work environments, implicit cost, opportunity costs, incentive schemes |
| JEL: | C91 D01 D03 D24 J22 J24 J33 L23 M52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10546&r=cta |
| By: | Galasso, Alberto; Mitchell, Matthew; Virag, Gabor |
| Abstract: | The past decade has witnessed a resurgence in innovation awards, in particular of Grand Innovation Prizes (GIPs) which are rewards to innovators developing technologies reaching performance goals and requiring breakthrough solutions. GIPs typically do not preclude the winner also obtaining patent rights. This is in stark contrast with mainstream economics of innovation theories where prizes and patents are substitute ways to generate revenue and encourage innovation. Building on the management of innovation literature which stresses the difficulty to specify ex-ante all the technical features of the winning technologies, we develop a model in which innovative effort is multi-dimensional and only a subset of innovation tasks can be measured and contracted upon. We show that in this environment patent rights and cash rewards are complements, and that GIPs are often preferable to patent races or prizes requiring technologies to be placed in the public domain. Moreover, our model uncovers a tendency for patent races to encourage speed of discovery over quality of innovation, which can be corrected by GIPs. We explore robustness to endogenous entry, costly public funds, and incomplete information by GIP organizers on the surplus created by the technology. |
| Keywords: | innovation; patent; prizes |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11860&r=cta |