Working Paper: CEPR ID: DP16024
Authors: Catherine Bobtcheff; Raphaël Levy; Thomas Mariotti
Abstract: Two players receiving independent signals on a risky project with common valuecompete to be the first to innovate. We characterize the equilibrium of this preemptiongame as the publicity of signals varies. Private signals create a winner's curse:investing first implies that the rival has abstained from investing, possibly because hehas privately received adverse information about the project. Since players want togather more evidence in support of the project as a compensation, they invest laterwhen signals are more likely to be private. Because of preemption, the NPV of investmentis zero at equilibrium regardless of the publicity of signals. However, for aconservative planner who cares about avoiding unprofitable investments, this impliesthat investment arises too early at equilibrium, and such a planner then prefers signalsto be private. This provides a rationale against the mandatory disclosure of negativeresults in science, notably when competition is severe. Our results suggest thatpolicy interventions should primarily tackle winner-takes-all competition, and regulatetransparency only once competition is sufficiently mild.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| publicity of signals (L96) | investment timing (G11) |
| private signals (Y50) | delayed investment (G31) |
| public signals (C11) | early investment (G31) |
| investment timing (G11) | welfare outcomes (I38) |
| private signals (Y50) | preferable investment timing for conservative planner (G11) |
| mandatory disclosure of negative results (G38) | suboptimal in competitive environments (L13) |
| competition (L13) | regulation of transparency (G38) |