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on Contract Theory and Applications |
| By: | Yuan, Yating (University of Warwick) |
| Abstract: | A principal incentivizes a team of agents to work on a joint project. Building on Winter (2004), this paper explores a simple mechanism where agents choose between two public messages, collaborate and ‘monopolize’, and the message profile decides their bonus upon team success. The principal minimizes the total payment while ensuring full effort in outcomes that survive Iterative Elimination of Weakly Dominated Strategies. The optimal mechanism reaches the first-best payment, leaving no rent for strategic uncertainty. Unlike previous results (Winter, 2004; Halac et al., 2021; Cavounidis and Ghosh, 2021), the optimal bonus allocation is neither discriminatory nor private. Thus, effciency need not come at the cost of fairness or transparency. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1561 |
| By: | Ashish Arora; Sharon Belenzon; Larisa C. Cioaca; Elia Ferracuti |
| Abstract: | We quantify the private returns to government R&D contracts awarded to firms. We present new evidence that R&D contracts not only finance innovation but also embed an implicit government guarantee of noncompetitive future procurement for the winning R&D contractor. We measure its private value by analyzing stock market reactions to news about R&D contract awards. Using all federal R&D contracts awarded to U.S. publicly traded firms from 1984 through 2015, we find that the average private return on an R&D contract is 19 times its maximum potential revenue. However, returns are highly skewed, with only 7.5% of firms receiving at least one top-quartile contract. Private returns are linked to future production contracts, but only for noncompetitive awards to vertically integrated or large firms. These results suggest that a procurement regime bundling R&D and production contracts enhances value for firms with production capability. We develop a conceptual framework to clarify this innovation policy lever. |
| JEL: | H57 O31 O38 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33880 |
| By: | Francesc Dilmé; Daniel F. Garrett |
| Abstract: | A seller with commitment power sets prices over time. Risk‐averse buyers arrive to the market and decide when to purchase. We show that it is optimal for the seller to choose a constant high price punctuated by occasional episodes of sequential discounts that occur at random times. This optimal price path has the property that the price a buyer ends up paying is independent of his arrival and purchase times, and only depends on his valuation. Our theory accommodates empirical findings on the timing of discounts. |
| Keywords: | dynamic pricing, sales, random mechanisms |
| JEL: | D82 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_688 |
| By: | Daniel Aronoff; Robert M. Townsend |
| Abstract: | We present a model of a market that is intermediated by broker-dealers where there is multiple equilibrium. We then design a smart-contract that receives messages and algorithmically sends trading instructions. The smart-contract resolves the multiple equilibrium by implementing broker-dealer joint profit maximization as a Nash equilibrium. This outcome relies upon several factors: Agent commitments to follow the smart contract protocol; selective privacy of information; a structured timing of trade offers and acceptances and, crucially, trust that the smart-contract will execute the correct algorithm. Commitment is achieved by a legal contract or contingent deposit that incentivizes agents to comply with the protocol. Privacy is maintained by using fully homomorphic encryption. Multiple equilibrium is resolved by imposing a sequential ordering of trade offers and acceptances, and trust in the smart-contract is achieved by appending the smart-contract to a public blockchain, thereby enabling verification of its computations. This model serves as an example of how a smart-contract implemented with cryptography and blockchain can improve market outcomes. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.22940 |