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Big Push in Distorted Economies
Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in ﬁrms' technology adoption decisions: The gains from adoption are larger when more ﬁrms adopt. When this complementarity is strong, multiple equilibria and hence coordination failures are possible. More importantly, even without equilibrium multiplicity, the model elements responsible for the complementarity can substantially amplify the eﬀect of distortions and policies. ...
Rewarding sequential innovators: prizes, patents and buyouts
This paper presents a model of cumulative innovation where firms are heterogeneous in their research ability. We study the optimal reward policy when the quality of the ideas and their subsequent development effort are private information. The optimal assignment of property rights must counterbalance the incentives of current and future innovators. The resulting mechanism resembles a menu of patents that have infinite duration and fixed scope, where the latter increases in the value of the idea. Finally, we provide a way to implement this patent menu by using a simple buyout scheme: The ...
Moral hazard and persistence
We study a multiperiod principal-agent problem with moral hazard in which effort is persistent: the agent is required to exert effort only in the initial period of the contract, and this effort determines the conditional distribution of output in the following periods. We provide a characterization of the optimal dynamic compensation scheme. As in a static moral hazard problem, consumption ? regardless of time period ? is ranked according to likelihood ratios of output histories. As in most dynamic models with asymmetric information, the inverse of the marginal utility of consumption ...
Market size matters
This paper empirically examines the effects of market size on producers' sizes in retail trade industries with many producers. A robust prediction of oligopoly theory is that larger markets are more competitive and have lower price-cost markups. Because producers in more competitive markets must sell more at a lower markup to recover their fixed costs, oligopoly theory implies that larger and more competitive markets have larger producers. Our estimated market size effects indicate whether or not this prediction of oligopoly theory carries over to competition among many producers. ; Our ...