Patent Policy, Imitation Incentives, and The Rate of Cumulative Innovation with Silvana Krasteva and Chu Wang, Journal of Economic Behavior & Organization, Vol. 178, 509-533, Oct. 2020.
We study an infinite-horizon cumulative innovation model, in which patents are characterized by their length and the likelihood of being ruled valid in a patent infringement litigation. Strengthening patent protection via a greater validity or length has two opposing effects on innovation: 1) a negative litigation effect due to increasing the litigation threat for future innovators; and 2) a positive competition effect due to reducing profit-eroding imitation by competitive firms without innovation capacity. The optimal innovation-maximizing patent policy balances these two opposing effects. For moderate patent validity, longer remaining lifetime increases innovation due to the competition effect. The opposite is true for higher validity, for which the litigation effect dominates. Moderate validity and infinite patent length maximizes innovation when future profits are subject to greater discounting and R&D costs are low, while strong validity and finite length stimulates more innovation under lower discounting and higher R&D costs.
Advertising and Voter Data in Asymmetric Political Contests with Liad Wagman, Information Economics and Policy, Vol. 52, Sep. 2020.
We study a political contest where two candidates advertise on a platform to persuade voters to vote in their favor. Voters a priori favor one of the candidates. The extent of a candidate's favorability can be ascertained by a data intermediary who can decide to sell this information to one, both or neither of the candidates. We contrast the intermediary's incentives for selling information with the platform's incentives for maximizing candidates' advertising expenditures, and show that the two are always at conflict. Our findings suggest that tensions may exist between social-media platforms, which often generate data that an intermediary may collect, and an intermediary whose data sale choice can lower the platform's profit from advertisements. We characterize conditions under which the intermediary can influence the outcome of the contest.
State Enforceability of Non-Compete Agreements: Regulations That Stifle Productivity! with Smriti Anand, Iftekhar Hasan and Haizhi Wang, Human Resource Management, Vol. 57, 341-354, Jan/Feb 2018.
Abridged version published in Academy of Management Proceedings 2015
Recognized as one of the best papers at Academy of Management Annual Meetings 2015.
Non-compete agreements (also known as Covenants Not to Compete or CNCs) are frequently used by many businesses in an attempt to maintain their competitive advantage by safeguarding their human capital and the associated business secrets. Although the choice of whether to include CNCs in employment contracts is made by firms, the real extent of their restrictiveness is determined by the state laws. In this paper, we explore the effect of state level CNC enforceability on firm productivity. We assert that an increase in state level CNC enforceability is detrimental to firm productivity, and this relationship becomes stronger as comparable job opportunities become more concentrated in a firm’s home state. On the other hand, this negative relationship is weakened as employee compensation tends to become more long-term oriented. Results based on hierarchical linear modeling analysis of 21,134 firm-year observations for 3,027 unique firms supported all three hypotheses.
Is More Information Always Better?: A Case in the Credit Markets, Journal of Economic Behavior & Organization, Vol. 134, 269-283, Feb. 2017.
This paper studies the impact of behavioral and non-behavioral information contained in consumer credit reports on the credit market. A repeated game of incomplete information between a borrower and a sequence of lenders is considered. Lenders’ beliefs regarding the borrower’s type depend on the borrower’s historical loan performance and other informative signals. It is established that for low beliefs, strategic defaults occur in equilibrium as the borrower defaults on his loans despite having the ability to repay them. Further, as the ancillary signals become increasingly informative of the borrower’s type, the range of beliefs over which strategic defaults occur expands. This increase in strategic defaults highlights an unintended negative effect of allowing informative signals to influence beliefs. On the upside, the informative signals allow the lenders to learn the borrower’s type more quickly.
The 80/20 Rule: Corporate Support for Innovation by Employees with Silvana Krasteva and Liad Wagman, International Journal of Industrial Organization, Vol. 38, 32-43, Jan. 2015.
We study the problem faced by a research employee when choosing whether to pursue an innovative idea inside the firm or to form a start-up. We characterize an idea by its stand-alone value as well as by the degree of (positive or negative) externality that it would impose on the firm's existing profits once developed. Internal exploration, while allowing the employee to take advantage of any exploration support offered by the firm, reduces the employee's claim over his idea. We find that external exploration takes place for ideas weakly related to the firm, with other ideas explored internally. Greater exploration support by the firm induces internal exploration of a wider range of ideas. Interestingly, it also increases the likelihood of employees departing to attempt independent ventures at a later stage of development. We find that the optimal level of support for exploration from the firm's point of view increases as the firm's bargaining power vis-à-vis the researcher's strengthens, and decreases as the firm becomes less dependent on individual employees to conceive and develop new ideas.
I-deal or No I-deal? Lessons for Managers from Economic Theory with Smriti Anand, Pouya Haddadian Nekah and Liad Wagman, Idiosyncractic Deals at Work: Exploring Individual, Organizational, and Societal Perspectives, Edited by Anand and Rofcanin (2021).
We explore the interface of idiosyncratic work arrangements (i-deals) and economic theory on private information. To that end, we model i-deals as informal supervisor-employee agreements, and use the principal-agent framework from economics to form linkages between the two literatures. We first highlight that supervisor-employee interactions tend to be rife with information asymmetries, where one party may possess some information that the other party does not. Next, we link the economic concepts of adverse selection and moral hazard to i-deals, pointing out the potential negative effects of information asymmetries on supervisor-employee interactions. Lastly, we introduce two market mechanisms from economics, namely signaling and screening, that can be useful in overcoming the issues surrounding information asymmetries, and emphasize their applicability to i-deals. The discussion illustrates informational reasons that may drive managers to reject i-deal arrangements, as well as potential solutions.
More or Less Data? Information Acquisition in Asymmetric Elections (with Liad Wagman)
The Differential Effects of Privacy Protections and Digital Ad Taxes on Publisher and Advertiser Profitability (with Yidan Sun and Liad Wagman)