Abstract: This paper develops a model of serial experimentation where an entrepreneur experiments with different ideas until one of them produces a success. The entrepreneur starts with one idea and new ideas arrive over time, but switching from the current idea to an untried new idea is irreversible and requires funding by an investor. A more creative entrepreneur both generates ideas faster and creates more profits when an idea succeeds. Since creativity is not directly observable, investors infer creativity from an entrepreneur’s timing of switching, creating an incentive for the entrepreneur to distort their behavior to influence these perceptions. Equilibrium distortion differs from the standard signaling intuition: more creative type distorts towards less frequent switching while less creative type distorts towards more frequent switching, compared to a benchmark where creativity is observable. This arises for two reasons: (i) switching time is an imperfect signal of creativity, and (ii) investors' uncertainty about creativity affects the entrepreneur’s continuation payoff after switching. We also endogenize investors’ preference for creativity, accounting for the risk that projects are abandoned when the entrepreneur switches. This abandonment risk creates a trade-off for investors: while a more creative entrepreneur generates more profitable ideas, they are also more likely to abandon projects prematurely, potentially leading investors to favor less creative types who are more committed to sticking with their projects. Under this general framework, we explore how the investors’ equilibrium preference over creativity is affected by the observability of this trait, and characterize the equilibrium when creativity is either preferred or not by investors.

Abstract: This paper examines the strategic role of transparency in a 'winner-takes-all' innovation race, where two competing firms race to achieve three consecutive breakthroughs in order to obtain the innovation. At each stage of the race, firms decide on their level of transparency, which affects the likelihood of their breakthroughs leaking to competitors. Our model reveals that full transparency can emerge as an equilibrium strategy during the early stages of the race, but also that transparency must decline as technological leads extend. If transparency enhances productivity, then a firm’s openness gradually decreases as its lead grows, while if transparency solely affects information leakage, the firm’s strategy becomes ``bang-bang'' — either fully transparent or fully opaque. These findings offer insights into real-world dynamics such as the evolving transparency strategies observed in the race for artificial general intelligence, where early transparency has given way to increasing secrecy.

Abstract: When an agent does not work hard, the principal cannot discern whether the failure is due to the agent’s shirking or low ability. Consequently, if the agent values their reputation or ability evaluation to maintain their position, they may be less inclined to exert high effort. This raises two critical questions: When does this type of moral hazard become significant, and how should principals address it? In this study, we investigate a model where the agent’s effort is observable, and the principal decides whether to search for an outside option as a potential replacement for the agent. We find that the principal’s search activity can inadvertently undermine the agent’s incentives by threatening job security, leading to diminished effort. Our analysis identifies conditions under which the principal benefits from refraining from search or committing to tenure. Specifically, when the probability of success is low, search activity is more likely to harm the agent’s incentives. Conversely, when the relative value of the agent’s effort is high, granting tenure proves advantageous for the principal.