nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2020‒04‒20
three papers chosen by
Guillem Roig
University of Melbourne

  1. Scientific Grant Funding By Pierre Azoulay; Danielle Li
  2. Auctions vs. negotiations in vertically related markets By Emanuele Bacchiega; Olivier Bonroy; Emmanuel Petrakis
  3. Intra-firm Trade, Input-output Linkage, and Contractual Frictions: Evidence from Japanese Affiliate-level Data By MATSUURA Toshiyuki; ITO Banri; TOMIURA Eiichi

  1. By: Pierre Azoulay; Danielle Li
    Abstract: This chapter provides an overview of grant funding as an innovation policy tool aimed at both practitioners and science policy scholars. We first discuss how grants relate to other contractual mechanisms such as patents, prizes, or procurement contracts, and argue that, among these, grants are likely to be the most effective way of supporting early stage, exploratory science. Next, we provide a brief history of the modern scientific grant and discuss the current state of knowledge regarding several key elements of the design of grant programs: the choice of program scope, the design of peer review, as well as approaches for creating incentives for risk-taking and translation for grant recipients. We argue that, in making these choices, policy-makers might consider adopting a portfolio-based mindset that seeks a diversity of approaches, while accepting that high failure rates for individual projects is in fact part of an effective grant-making program. Finally, increased rigor in the evaluation of grant programs is likely to raise the quality of funded proposals. In particular, randomized controlled trials and other quasi-experimental techniques might enable policy makers to communicate and enhance the impact that these programs have on discovery and innovation, thereby creating a stronger justification for their expansion or continued existence.
    JEL: I23 O31
    Date: 2020–03
  2. By: Emanuele Bacchiega; Olivier Bonroy; Emmanuel Petrakis
    Abstract: In a two-tier industry with bottleneck upstream and two downstream firms producing vertically differentiated goods, we identify conditions under which the upstream supplier chooses exclusive or non-exclusive negotiations, or an English auction to sell its essential input. Auctioning off a two-part tariff contract is optimal for the supplier when its bar- gaining power is low and the final goods are not too differentiated. Otherwise, the supplier enters into exclusive or non-exclusive negotiations with the downstream firm(s). Finally, in contrast to previous findings, an auction is never welfare superior to negotiations.
    JEL: D43 L13 L14
    Date: 2020–04
  3. By: MATSUURA Toshiyuki; ITO Banri; TOMIURA Eiichi
    Abstract: This paper examines the impact of input-output linkages on intra-firm trade based on affiliate-level data of Japanese multinationals (MNEs). We find that MNE parents tend to trade relatively more with their affiliates in vertically linked sectors if they trade goods with low contractibility, especially with affiliates located in East Asia, which is the major developing-country destination for Japanese MNEs. This result indicates that input-output linkage is a significant determinant of intra-firm trade when the trade is affected by contractual frictions. We also confirm that intra-firm trade is observed only in a limited fraction of affiliates.
    Date: 2020–03

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