CURRENT RESEARCH

Optimal Mechanisms with Non-Quasilinear Preferences.

This paper considers a classic problem in mechanism design: maximizing an objective subjective to incentive constraints. This type of problem appears in optimal taxation, optimal auctions, monopoly pricing, and so on. Examples include the work of Mirrlees on taxation, Mussa and Rosen on monopoly pricing and Myerson on auctions. A representative case for the discussion here is where a firm maximizes profit, selling a good at varying price-quality pairs. With variation in individual preferences, rather than offer one price-quality pair, it is generally profit-improving to offer a menu of price-quality pairs. The mechanism design literature has predominantly used quasilinear preferences in the study of optimal mechanisms. This assumption simplifies the structure of the incentive constraints, and in particular, revenue can be expressed in terms of surplus through a virtual valuation function. Effectively, variation in the virtual valuation measures the revenue gain from an allocation variation at a type against the resulting revenue loss through incentive compatibility on other types, leading directly to a first order marginal benefit-marginal cost condition. This is not possible in general for non-quasilinear preferences, and studying optimal mechanisms in that case is the subject of this paper. (Under review.)

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Patent Licensing, Non-Practising Entities, and Investment in R&D

This paper studies the impact of Non-Practising Entities (NPE's) on investment ininnovation. The issue is considered in an environment with strategic investment behavior and licensing. Patent strength turns out to be central in determining the impact of an NPE on innovation. A patenting scheme which assigns rights only to incremental innovation improvement (relative to the innovations of competitors) raises aggregate investment relative to a ``winner-takes-all'' scheme. In a ``winner-takes-all'' scheme the most successful/encompassing innovation obtains all the intellectual property rights, and less successful innovators none, and in this environment the presence of an NPE negatively impacts aggregate investment.

(Journal of Industrial Economics. June 2022, Vol LXX, No. 2, pp396-462.)

The Pace and Size of Innovation.

Firms innovate for cost reduction, quality improvement, new product introduction, and so forth. Investment in innovation produces uncertain outcomes, both in terms of when the innovation arrives, and its value on arrival. The standard model used in the literature is the Poisson process which describes innovations of fixed size arriving at random intervals of time. That model isn't well adapted to study investment uncertainty --- where the uncertainty relates not only to the arrival time, but also to the quality of the innovation that arrives: the distribution of innovation quality for any given arrival time is important. This research agenda is concerned with developing and analyzing a model where there is both arrival uncertainty and quality uncertainty, and examining investment behaviour in this environment. In this enlarged model some features of equilibrium investment competition are: (i) From a social welfare viewpoint, the symmetric equilibrium allocates insufficient R&D to high-risk high return innovation, (ii) Firms with larger research budgets spend a bigger proportion of R&D on more significant innovation projects, and (iii) Increasing risk aversion increases incremental innovation (relative to Blue-Sky innovation) in the symmetric equilibrium.

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