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Delegating Investment in a Common-Value Project

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  • Suzanne Scotchmer.
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.

Suggested Citation

  • Suzanne Scotchmer., 1999. "Delegating Investment in a Common-Value Project," Economics Working Papers E99-266, University of California at Berkeley.
    • Handle: RePEc:ucb:calbwp:e99-266
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    References listed on IDEAS

    as
    1. Minehart, Deborah & Scotchmer, Suzanne, 1999. "Ex Post Regret and the Decentralized Sharing of Information," Games and Economic Behavior, Elsevier, vol. 27(1), pages 114-131, April.
    2. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
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    6. Francesca Cornelli & Mark Schankerman, 1999. "Patent Renewals and R&D Incentives," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 197-213, Summer.
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    8. McAfee, R Preston & McMillan, John & Reny, Philip J, 1989. "Extracting the Surplus in the Common-Value Auction," Econometrica, Econometric Society, vol. 57(6), pages 1451-1459, November.
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    12. David Sappington, 1982. "Optimal Regulation of Research and Development under Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 354-368, Autumn.
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    Cited by:

    1. Nancy Gallini & Suzanne Scotchmer, 2002. "Intellectual Property: When Is It the Best Incentive System?," NBER Chapters, in: Innovation Policy and the Economy, Volume 2, pages 51-78, National Bureau of Economic Research, Inc.
    2. 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.

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    JEL classification:

    • L0 - Industrial Organization - - General

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