Philipp Weinschenk

Persistence of Monopoly and Research Specialization

We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.

Moral hazard and ambiguity

We consider a principal-agent model with moral hazard where the agent’s knowledge about the performance measure is ambiguous and he is averse towards ambiguity. We show that the principal may optimally provide no incentives or contract only on a subset of all informative performance measures. That is, the Informativeness Principle does not hold in our model. These results stand in stark contrast to the ones of the orthodox theory, but are empirically of high relevance.

Procrastination in teams and contract design

We study a dynamic model of team production with moral hazard. We show that players might procrastinate to exploit the future externalities of team production. Contract design is shown to be a powerful tool to mitigate the problem of procrastination and enhance efficiency. The teams ability to write discriminatory contracts is therefore central. We also show that deadlines are not beneficial for a team, provided that players can choose efforts frequently and design contracts optimally.

Skill Formation Under Incomplete Information

We consider an economic model of child development with multiple stages. Due to incomplete information, parents are not able to tailor their investments to their child’s type when the child is young. We show that incomplete information weakens the importance of early investments in children when inter-stage investments are easily substitutable, but strengthens them when substitution is difficult. The latter case is empirically relevant.

Entry and Incumbent Innovation

We explore how the threat of entry influences the innovation activity of an incumbent. We show that the incumbent’s investment is hump-shaped in the entry threat. When the entry threat is small and increases, the incumbent invests more to deter entry, or to make it unlikely. This is due to the entry deterrence effect. However, when the threat becomes huge, entry can no longer profitably be deterred or made unlikely and the investment becomes small. Then the Schumpeterian effect dominates. These results turn out to be very robust.

Increasing Workload in a Stochastic Environment

We show that a steeply increasing workload before a deadline is compatible with time-consistent preferences. The key departure from the literature is that we consider a stochastic environment where success of effort is not guaranteed.

Procrastination in Teams, Contract Design and Discrimination

We study a dynamic model of team production with moral hazard. We show that the players begin to invest effort only shortly before the time limit when the reward for solving the task is shared equally. We explore how the team can design contracts to mitigate this form of procrastination and show that the second-best optimal contract is discriminatory. We investigate how limited liability or the threat of sabotage influences the team’s problem. It is further shown that players who earn higher wages can be worse off than teammates with lower wages and that present-biased preferences can mitigate procrastination.

Do Teams Procrastinate? Strategic Procrastination in a Dynamic Environment

Abstract We experimentally study strategic procrastination in a dynamic team environment. Two team members work for a finite number of periods on a joint project. The project’s success probability depends on the effort provided by both group members. Payment is conditional on finishing the project successfully. Between treatments, we vary whether both agents are free to choose their effort level or only a single agent can do so. If only one agent can choose effort, the effort of the other member is exogenously fixed; either to providing effort only shortly before the deadline or to providing effort in all periods. While in the former case we observe some effort patterns that resemble rational procrastination, the results from the other two treatments suggest that this seems to be caused by other-regarding concerns rather than being due to the strategic motives inherent in the mechanics of rational procrastination models.