Issue 4

Volume 30 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Winter 2021

Buyers’ role in innovation procurement: Evidence from US military R&D contracts

Francesco Decarolis, Gaétan de Rassenfosse, Leonardo M. Giuffrida, Elisabetta Iossa, Vincenzo Mollisi, Emilio Raiteri, and Giancarlo Spagnolo
This study provides the first quantification of buyers' role in the outcome of R&D procurement contracts. We combine together four data sources on US federal R&D contracts, follow-on patented inventions, federal public workforce characteristics, and perception of their work environment. By exploiting the observability of deaths of federal employees, we find that managers' death events negatively affect innovation outcomes: a 1% increase in the share of relevant public officer deaths causes a decline of 32.3% of patents per contract, 20.5% patent citations per contract, and 34.3% patent claims per contract.

Do exit options increase the value for money of public–private partnerships?

Marco Buso, Cesare Dosi, and Michele Moretto
We study the effects of granting an exit option allowing the private party to terminate a Public–Private Partnerships contract early if it turns out to be loss-making. In a continuous-time setting with hidden information about the private returns on investment, we show that an exit option, acting as a risk-sharing device, can soften agency problems and, in so doing, spur investment and increase the government's expected payoff, even while taking into account the costs that the public sector will have to meet in the future to resume the project.

Mobile Internet usage and usage-based pricing

Jeffrey Prince and Shane Greenstein
Using data on mobile Internet usage of thousands of individuals, we provide some of the first analyses linking mobile usage to key demographics such as income. We find a reverse-U relationship between mobile Internet usage and income—notably different than the monotonically declining relationship found on home devices. We then construct a simple model of mobile Internet usage that incorporates demand features suggested by our empirical finding and prior empirical findings on device adoption and usage.

Too big to succeed? Overstaffing in firms

Hans K. Hvide and Yanren Zhang
Overstaffing appears to be a source of significant inefficiencies in organizations, but there is little economic theory that informs us why. We extend the canonical Lazear–Rosen tournament model to a dynamic setting that yields overstaffing at the managerial level.

Promotions, managerial project choice, and implementation effort

Frédéric Loss and Antoine Renucci
In our model where career concerns take the form of promotion, managers use projects and effort to influence the labor market beliefs regarding their ability. We show that managers consider how projects affect the extent to which posterior beliefs can differ from initial beliefs, the precision of posterior beliefs, and equilibrium implementation effort costs.

Social efficiency of entry: Implications of network externalities

Debasmita Basak and Emmanuel Petrakis
We examine the welfare effects of entry in the presence of network externalities. We show that if network goods are fully incompatible, entry is socially insufficient as long as the entry cost is high, the goods are sufficiently differentiated, and the degree of network externality is low. Further, we show that as the degree of compatibility between the network goods increases, insufficient entry becomes more likely. Our findings provide policy guidelines for anticompetitive and procompetitive entry regulations.

Exclusive dealing when upstream displacement is possible

Ke Liu and Xiaoxuan Meng
We study exclusive dealing when the incumbent may be displaced by a more efficient entrant due to the need for a firm to pay a fixed cost to remain active. We show that the incumbent can deter socially efficient entry through exclusive contracts under the one-buyer-one-supplier framework. This result continues to hold in the presence of product differentiation, in which case exclusion is more likely to occur when the efficiency gap between the entrant and the incumbent falls into an intermediate range.

The role of expertise in syndicate formation

Sylvain Bourjade
In most initial public offerings around the world, an underwriter selects syndicate members and uses their information to set the offering price. The objective of this paper is to develop a model of the “book building” process in which the formation of the syndicate is an endogenous decision variable. I show that the underwriter faces a tradeoff between the cost of extracting information and valuation accuracy.