Essays on Information and Dynamic Incentives

This dissertations consists of three essays on information and dynamic incentives.

In Chapter 1, I study the value of information in monotone decision problems where the action spaces are potentially multidimensional. As a criterion for comparing information structures, I develop a condition called monotone quasi-garbling meaning that an information structure is obtained by adding reversely monotone noise (more likely to return a higher signal in a lower state and a lower signal in a higher state) to another. It is shown that monotone quasi-garbling is a necessary and sufficient condition for decision makers to get a higher ex-ante expected payoff. Under the monotone likelihood ratio property, this new criterion is equivalent to the accuracy condition by Lehmann (1988) and refines the garbling condition by Blackwell (1951, 1953). To illustrate, I apply the result to problems in nonlinear monopoly pricing and optimal insurance.

In Chapter 2, I study a dynamic principal-agent problem where there are two routes of completing a project: directly attacking it or splitting it into two subprojects. When the project is split, the principal can better monitor the agent by verifying the completion of the first subproject. However, the inflexible nature of this approach may generate inefficiencies. To mitigate moral hazard, the principal needs to commit to a deadline, which also affects her choice of project management strategy. The optimal contract is determined by the interplay of these three factors: monitoring, efficiency, and an endogenous deadline.

Chapter 3, which is a joint work with Francisco Poggi, investigates firms' incentives to conceal intermediate research discoveries in innovation races. To study this, we introduce an innovation game where two racing firms dynamically allocate their resources between two distinct research and development (R&D) paths towards a final innovation: (i) developing it with the currently available but slower technology; (ii) conducting research to discover a faster new technology for developing it. We fully characterize the equilibrium behavior of the firms in the cases where their research progress is public and private information. Then, we extend the private information setting by allowing firms to conceal or license their intermediate discoveries. We show that when the reward of winning the race is high enough, firms would conceal their interim discoveries, which inefficiently retards the pace of innovation.