Glenn MacDonald

Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent

A model of patenting behavior is presented in which an innovating firm possesses private information about profits available to competitors, and patent coverage may not exclude profitable imitation. A wide variety of predictions are obtained. Among them: a firm will patent only some fraction of its produced innovations, and this fraction is positively correlated with endogenous research and development expenditures. Numerous extensions of the model are developed, for example, the inclusion of an explicit patent race and the emergence of trade secrecy.

How Do Value Creation and Competition Determine Whether a Firm Appropriates Value

How does competition among economic actors determine the value that each is able to appropriate? We provide a formal, general framework within which this question can be posed and answered, and then provide several results. Chief among them is a condition that is both required for, and guarantees, value appropriation. We apply our methodology to (i) assess the familiar notion that uniqueness, inimitability, and competition imply value appropriation, and (ii) determine the value appropriation possibilities for an innovator whose unique discovery is of use to several others who can compete for the right to use it.

Is advertising a signal of product quality? Evidence from the compact disc player market, 1983–1992

Abstract We study panel data on advertising and pricing in the compact disc player market during 1983–1992. Controlling for product features, firm heterogeneity, and aggregate effects, (i) advertising increases after the player is introduced, but at a decreasing rate; and (ii) price falls from the outset, and at an accelerating pace. These patterns are inconsistent with both the perfect learning in papers by Kihlstrom and Riordan [J. Polit. Econ. 92 (1984) 427]; and Milgrom and Roberts [J. Polit. Econ. 94 (1986) 796] and the imperfect learning in Horstmann and MacDonald [J. Econ. Manag. Strat. 3 (1994) 561] versions of paper by Nelson [J. Polit. Econ. 82 (1974) 729] model of advertising. Extensions having persistent consumer uncertainty and learning can explain these profiles.

Person-Specific Information in the Labor Market

Heterogeneity on both sides of the labor market implies that the correct matching of individuals to firms is of importance. If there is uncertainty about individual productive characteristics, there are both private and social returns to activities that generate information facilitating the assortative matching process. A model of individual investment in information is presented and analyzed. A key assumption is that there are no individuals who have an absolute advantage in all jobs. Under this assumption, all individuals view more accurate information as beneficial and therefore invest in its production. Comparative statics are derived and the model is compared to human capital and signaling-screening models.

The cyclical behavior of job creation and job destruction: A sectoral model*

SummaryThree key features of the employment process in the U.S. economy are that job creation is procyclical, job destruction is countercyclical, and job creation is less volatile than job destruction. These features are also found at the sectoral (goods and services) level. The paper develops, calibrates and simulates a two-sector general equilibrium model that includes both aggregate and sectoral shocks. The behavior of the model economy mimics the job creation and destruction facts. A non-negligible amount of unemployment arises due to the presence of aggregate and sectoral shocks.

A Rehabilitation of Absolute Advantage

This paper considers the question of how optimal assignments depend on the endowed traits of economic agents. Its most useful point is that the absolute levels of these traits, in conjunction with technology, always determine the structure of efficient allocations. Only under very special circumstances do summary measures of the strycture of traits, such as comparative advantage, succeed in performing this function unless they do so tautologically.

INFORMATION IN PRODUCTION

THIS PAPER PRESENTS a simple model of the manner in which person-specific information on productive capabilities is put to use in the firm. The analysis is then employed to examine the impact of improved information quality on equilibrium output, wage rates, and degree of specialization. Much effort has been devoted to studying the process through which personspecific information is accumulated. Burdett-Mortensen [1], MacDonald [8], Prescott-Visscher [10], Hartog [3], and Johnson [5] examine the process of learning about person-specific parameters through investment of resources in activities that yield information. Jovanovic [6] analyses the more specific problem of inferring the quality of a particular job-worker match. Little attention has been given to the question of just how the firm utilizes this kind of information. For information to play an interesting role in production, two things are necessary. One is that workers be heterogeneous in a meaningful sense. That is, in the space of productive characteristics, workers must not all be simply scalar multiples of one another. Second, the firm must have some choice about the kind of activities in which workers are engaged. If either of these conditions fails, the optimal assignment of workers is not a problem.2

Operationalizing Value-Based Business Strategy

Brandenburger and Stuart (1996) identified coalitional games as a means of providing precise notions of value to evaluate strategic opportunities. In this paper, we show how coalitional game theory can be utilized to operationalize these approaches. In particular, we demonstrate the importance of considering full competitive interactions (rather than simply added value) when applying coalitional game theory and also how this can be employed to provide insights into the workings of an existing economic activity as well as to suggest ways that the activity might be altered to a firms advantage. We illustrate with an application in which an innovator considers whether to commercialize a new technology.

Economics, Demography and Communication

This paper presents a model in which agents are distinguished by their characteristics, exchange of goods requires communication between firms and their customers, and agents with similar characteristics communicate more effectively. This setup delivers a body of testable impliactions about the matching of workers to jobs, the associated wages and product prices and the manner in which job assignments, wages, and prices responde to changes in the parameters of the economy.

The Structure Of Equilibrium Payoffs In Superadditive Coalitional Games

We explore the determinants of the payoffs an individual player may obtain in the equilibria of superadditive n-player coalitional games with transferable payoff. We provide conditions necessary and sufficient for the lower bound on a players equilibrium payoff to coincide with his reservation payoff, and show that if this lower bound is strictly larger than the reservation payoff, then there is an implied condition whose obvious interpretation is in terms of competing groups of players. We also provide a parallel set of results on the upper bound.