Financing Innovation with Unobserved Progress

Hu, Zehao

doi:10.2139/ssrn.2547527

Cited by 4 publications

(2 citation statements)

References 20 publications

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“…Uncertainty about project quality is crucial to our analysis. Green and Taylor (2016), Hu (2014), and Shan (2017) consider principal one‐agent models with multistage projects without uncertainty about the quality of each stage. In our setting, under no uncertainty, the principal can implement efficient effort at no informational cost.…”

Section: Introductionmentioning

confidence: 99%

Experimentation in organizations

Moroni

2022

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We consider a moral hazard problem in which a principal provides incentives to a team of agents to work on a risky project. The project consists of two milestones of unknown feasibility. While working unsuccessfully, the agents' private beliefs regarding the feasibility of the project decline. This learning requires the principal to provide rents to prevent the agents from procrastinating and free‐riding on others' discoveries. To reduce these rents, the principal stops the project inefficiently early and gives identical agents asymmetric experimentation assignments. The principal prefers to reward agents with better future contract terms or task assignments rather than monetary bonuses.

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Section: Introductionmentioning

confidence: 99%

Experimentation in organizations

Moroni

2022

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“…The restless feature is essential for capturing the risk-time tradeoff but makes the model complicated (see, e.g., Fryer and Harms, 2019). The thinking arm concept is related to the few papers in the literature that study multistage bandits (Keller and Oldale, 2003;Hu, 2014;Green and Taylor, 2016;Wolf, 2018;Kim, 2021;Moroni, 2021).…”

Section: Introductionmentioning

confidence: 99%

On Risk and Time Pressure: When to Think and When to Do

Carnehl,

Schneider

2021

Preprint

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We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative implies progress that has to be converted to a solution. As time runs out, the chances of converting it in time shrink. We show that the agent may return to the initial idea after having left it in the past to explore alternatives. Our model helps explain so-called false starts. The agent takes risks early on to quickly arrive at a solution, sacrificing the prospects of alternatives.

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On Risk and Time Pressure: When to Think and When to Do

Carnehl

Schneider

2022

Journal of the European Economic Association

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We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative implies progress that has to be converted to a solution. As time runs out, the chances of converting it in time shrink. We show that the agent may return to the initial idea after having left it in the past to explore alternatives. Our model helps explain so-called false starts. To finish fast, the agent delays exploring alternatives reducing the overall success probability.

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Financing Innovation with Unobserved Progress

Cited by 4 publications

References 20 publications

Experimentation in organizations

Experimentation in organizations

On Risk and Time Pressure: When to Think and When to Do

On Risk and Time Pressure: When to Think and When to Do

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