Weekly Economics Webinar by Aditya V. Kuvalekar
September 8 @ 1:30 pm - 2:40 pm
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Title: Curtailing Competition [link to paper]
Speaker: Aditya V, Kuvalekar, Assistant Professor, University of Essex
Abstract: We study project development and selection by an organization whose members prefer different projects. The organization faces a trade-off between fostering collaboration among its members and responding efficiently to projects’ evolution. Choosing the most ex-post profitable project undermines members’ motive to collaborate, causing ex-ante inefficiency. We show a time-varying threshold rule is uniquely optimal, with the organization choosing the first project to achieve a sufficient lead. The optimum thus entails an early phase of uninterrupted competition, always followed by a permanent collaborative regime. We develop a new martingale-based solution approach, using weak solutions to construct the optimal contract.