This paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain. We provide sufficient conditions of a general nature under which the licensor prefers to use a per-unit royalty contract. In particular we show that this is the case for the holders...

The theoretical literature on the cumulative innovation process has emphasized the role of ex-ante licensing – namely, licensing agreements negotiated before the follow-on innovator has sunk its R&D investment – in mitigating the risk of hold-up of future innovations. In this paper, we...

Optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk and uncertainty, such as expected utility theory, subjective expected utility, and prospect theory. We therefore propose an alternative model of risky and uncertain choice...

This paper studies the impact of a small probability event on strategic behavior in incomplete information games with non-common priors. It is shown that the global impact of a small probability event (i.e., its propensity to affect strategic behavior at all states in the state space) has an...

We consider full implementation in complete-information environments when agents have an arbitrarily small preference for honesty. We offer a condition called separable punishment and show that when it holds and there are at least two agents, any social choice function can be implemented by a...

In a game with incomplete information players receive stochastic signals about the state of nature. The distribution of the signals given the state of nature is determined by the information structure. Different information structures may induce different equilibria.

We study how resale affects auctions with costly entry in a model where bidders possess two-dimensional private information signals: entry costs and valuations. We establish the existence of symmetric entry equilibrium and identify sufficient conditions under which the equilibrium is unique. Our...