Mariagiovanna Baccara

From Thought to Practice: Appropriation and Endogenous Market Structure with Imperfect Intellectual Property Rights

We address the problem faced by innovators who have an idea for a marketable product but must hire employees to bring the product to the market. Information leakage implies that newly-hired employees become informed of the idea and may attempt to bring the product to the market themselves. We develop a bargaining model that accounts for this problem. In this model, employee’s rents endogenously reflect the bargaining power vis-a-vis the firm that is due to the knowledge of the information. The model has a unique symmetric equilibrium in which the innovator appropriates a sizable share of the surplus despite the absence of property rights for ideas. We show that this share stays bounded away from zero even as the number of agents required in the development grows to infinity. We also derive the conditions under which monopoly or competition arise on the product market. We find that when the degree of potential competition on the product market is high enough, a monopoly is generated by hiring all potential competitors within the same firm. Finally, the link between intellectual property rights enforcement and industry performance is explored, and normative implications are derived.

Bargaining over new ideas: the distribution of rents and the stability of innovative firms

We develop a theory of the rent distribution and stability of innovative firms. Our theory is based on a model of bargaining over new ideas. The model accounts for the problem of information leakage, namely, the diffusion of information about new ideas among the agents that participate in the bargaining. Our main results draw a link between the strength of intellectual property rights enforcement and the distribution of rents in firms as well as between the size and organization of firms and their stability. Our theory explains why small firms are advantaged in introducing innovation into the market and why spin-outs tend to emerge from large established firms. (JEL: L1, L2, C7) (c) 2007 by the European Economic Association.

A field study on matching with network externalities

We study the effects of network externalities on a unique matching protocol for faculty in a large U.S. professional school to offices in a new building. We collected institutional, web, and survey data on facultys attributes and choices. We first identify the different layers of the social network: institutional affiliation, coauthorships, and friendships. We demonstrate and quantify the effects of network externalities on choices and outcomes. Furthermore, we disentangle the different layers of the social network and quantify their relative impact. Finally, we assess the matching protocol from a welfare perspective. Our study suggests the importance and feasibility of accounting for network externalities in general assignment problems and evaluates a set of techniques that can be employed to this end.

Homophily in Peer Groups

The focus of this paper is the endogenous formation of peer groups. In our model agents choose peers before making contributions to public projects, and they differ in how much they value one project relative to another. Thus, the groups preference composition affects the type of contributions made. We characterize stable groups and find that they must be sufficiently homogeneous. We also provide conditions for some heterogeneity to persist as the group size grows large. In an application in which the projects entail information collection and sharing within the group, stability requires more similarity among extremists than among moderate individuals.

Interrogation Methods and Terror Networks

We examine how the structure of terror networks varies with legal limits on interrogation and the ability of authorities to extract information from detainees. We assume that terrorist networks are designed to respond optimally to a trade-off caused by information exchange: Diffusing information widely leads to greater internal efficiency,but it leaves the organization more vulnerable to law enforcement. The extent of this vulnerability depends on the law enforcement authority s resources, strategy and interrogation methods. Recognizing that the structure of a terrorist network respondsto the policies of law enforcement authorities allows us to begin to explore the most effective policies from the authorities point of view.

Similarity and Polarization in Groups

The focus of this paper is the endogenous formation of peer groups. We study a model in which agents choose their peers prior to making decisions on multiple issues. Agents differ in how much they value the decision outcomes on one issue relative to another. While each individual can collect information on at most one issue, all information is shared within the group. Thus, the groups preference composition affects the type of information that gets collected. We characterize stable groups, groups that are optimal for all their members. When information costs are low, stable groups must be sufficiently homogeneous. Furthermore, stability requires more similarity among extremists than among moderate individuals. When information costs are substantial, a free rider problem arises, and makes extreme peers more desirable, as they are more willing to invest in information acquisition. We show that, as information costs grow, polarization appears and becomes increasingly pronounced in stable groups.

Bargaining Over New Ideas: Rent Distribution and Stability of Innovative Firms

We analyze a model of bargaining over new ideas. The model accounts for the problem of information leakage, i.e., the diffusion of information about the idea before and after the idea is implemented. We analyze the effects of information leakage on the distribution of rents within firms and the firms stability to the introduction of innovation. In the model, the distribution ofrents in a firm reflects the distribution of information about the idea. We show how the balance of power between the innovators and their collaborators depends on market conditions and firms size. The model also provides a formal link between the organization of firms and their stability:the model predicts that, a larger firm will tend to be less stable to the introduction of innovation.

Choosing peers: Homophily and polarization in groups

This paper studies the formation of peer groups entailing the joint production of public goods. In our model agents choose their peers and have to pay a connection cost for each member added to the group. After groups are formed, each agent selects a public project to make a costly contribution to, and all members of the group experience the benefits of these contributions. Since agents differ in how much they value one project relative to the other, the groups preferences affect the generated profile of public goods. We characterize mutually optimal groups, groups that are optimal for all their members. When contribution costs are low relative to connection costs, mutually optimal groups must be sufficiently homogeneous. As contribution costs increase relative to connection costs, agents desire more connections, which in turn raises the risk of free riding. Extreme peers are then more appealing, since they are more willing to contribute, and polarization arises.

Effective Vs. Efficient Securities in Arbitrage-Free Markets with Bid-Ask Spreads: A Linear Programming Characterization

We consider a securities market with bid-ask spreads at any period, including liquidation. Although the minimum-cost super-replication problem is non-linear, we introduce an auxiliary problem that allows us to characterize no-arbitrage via linear programming techniques. Since no-arbitrage per se does not bound the bid-ask spread of a newly traded security, we introduce the notion of effective new security. We show that effectiveness restricts the no-arbitrage bid and ask prices of a new security to the interval defined by the minimum-cost problem. We discuss in details the cases in which the boundaries of this interval can be reached without violating no-arbitrage. We also compare effectiveness to efficiency as discussed in Jouini and Kallal (2001). We show that effectiveness is not sufficient for efficency, but is equivalent to the weaker notion of zero inefficiency cost.