Enhancing Vertical Efficiency Through Horizontal Licensing

This paper examines the role of patent licensing in the age of outsourcing. When firms rely on outsourced inputs, a patent holder’s decision to license has both competitive and supplier pricing effects. By issuing a license, the firm increases competition in the product market. At the same time, the need to make royalty payments “weakens” the firm’s rival, making it more sensitive to supplier pricing. The supplier responds by softening pricing terms, and the firm benefits by siphoning some of these gains via the license fee. Not only can the licensor gain, but all other parties (the licensee, supplier, and consumers) can also benefit. This role of licensing presents additional considerations for regulators shaping patent laws. We thank Michael Crew, John Fellingham, Sharon Oster, David Sappington, Doug Schroeder, and two anonymous referees for helpful comments. Anil Arya acknowledges support from the John J. Gerlach Chair.     

Using Job Rotation to Extract Employee Information

This article provides an incentive-based explanation for thepractice of job rotation. When agents privately learn aboutthe productivity of tasks on which they work, job rotation canbe an efficient means of eliciting their information. Each agentfreely communicates his information since the switch in tasksguarantees his report will not subsequently be used againsthim; the report is used primarily in evaluating the new agentwho moves into the task. Another benefit is that an agent rotatedinto a job holds less task-specific information and is thuseasier to motivate. Job rotation also comes with a cost—agentsmust be compensated for the disutility of working on new tasks.We study this trade-off and identify conditions under whichjob rotation and specialization are each optimal.     

Pricing Internal Trade to Get a Leg up on External Rivals

The pricing of transfers from parent to subsidiary is an oft-explored issue. Linking the cost of internal transfers with external market prices is one common approach, typically justified when the market for the good is perfectly competitive. This paper shows that imperfect competition may also justify market-based transfer prices. Concern that transfer price will deviate from marginal cost and thereby distort subsidiary choices can lead a parent to undertake actions to influence the market price of the upstream good. Such efforts can provide a desirable strategic posture in the upstream market.     

Performance measurement manipulation: cherry-picking what to correct

A common feature of managerial and financial reporting is an iterative process wherein various parties selectively correct particular measurements by challenging them and subjecting them to increased scrutiny. We model this feature by adding an agent appeal stage to the standard moral hazard model and show that it can be optimal to allow the agent to decide which performance measures to appeal, despite the agent’s incentive to cherry-pick. In the presence of measurement errors, the agent is incentivized by increased opportunities for cherry-picking that arise if he chooses the “right” vs. the “wrong” acts.

Organizational Sustainability Determinants in Different Cultural Settings: A Conceptual Framework

Since the link between organizations’ sustainability initiatives and effects from the societal environment has not been consistently established in the literature, this paper provides a conceptual framework to demonstrate the antecedents to the levels of sustainability initiatives undertaken by firms. Taking insights from institutional theory, it proposes that the relationship between the sustainability determinants and the level of sustainability initiatives is mediated by coercive, mimetic and normative isomorphic pressures. Moreover, it suggests that culture plays a significant role in moderating the extent to which the various types of isomorphic pressure on firms may influence the levels of firms’ sustainability initiatives. The implications of the framework are discussed in the light of encouraging sustainability initiatives and overall sustainable development in various cultural settings as well as undertaking future research to enhance the framework and its applicability. Copyright © 2018 John Wiley & Sons, Ltd and ERP Environment     

Hierarchical reporting,aggregation, and information cascades

Aggregation is commonly associated with loss of information. In contrast, this paper shows that aggregation can actually enhance information down‐the‐road by deterring information cascades. In particular, when hierarchical tiers forward only aggregate recommendations rather than nitty‐gritty details, it increases the uncertainty faced by subsequent tiers. This makes individuals at higher levels more willing to rely on and convey their own views rather than simply rubber stamping suggestions from lower levels. Copyright © 2006 John Wiley & Sons, Ltd.     

The role of budgeting in eliminating tacit collusion

While accounting textbooks emphasize the roles of budgeting in controlling and coordinating agents' activities, the principal-agent literature has focused primarily on the control aspect. Recent papers have studied the coordination aspect of budgeting in settings in which the agents are technologically dependent (sequential or joint production is considered). In this article, we develop a role for budgeting in coordination, despite the agents being technologically independent (individual production is considered). In our model, the principal uses relative performance evaluation to extract information rents from the agents. However, the use of relative performance evaluation results in a multiple equilibria (tacit collusion) problem. The value of budgeting procedures is derived from their ability to coordinate the agents to arrive at the right equilibrium.     

Synergy among Seemingly Independent Activities*

“Synergy” implies that the value of activities undertaken jointly is greater than the sum of the values of the individual activities. Reasons cited for synergy include economies of scale, benefits due to vertical integration, and efficiency gains from shared inputs and skills. This paper shows that incentive (control) reasons alone can make activities synergistic. The result is derived in a model of adverse selection with risk‐neutral participants and linear technology. The linearity in the setting removes any obvious benefits to undertaking activities in tandem. Synergy gains are attributed to a convexity in the principal's payoff introduced by the activities' impact on the production versus rents trade‐off.     

Endogenous timing when a vertically integrated producer supplies a rival

This paper derives the timing equilibrium when a vertically integrated producer (VIP) supplies essential inputs to its retail rival. Such circumstances arise in a variety of industries, often characterized by regulated input prices. The distinguishing feature of markets with an influential VIP is that the VIP is not only a retail competitor but is also concerned about wholesale profits–profits it gleans from its retail rival(s). The VIP’s desire to balance profits across wholesale and retail markets leads to results that challenge conventional thinking about timing equilibria. Notably, under quantity competition, rather than the familiar cut-throat race to be a leader, the timing equilibrium prescribes a natural leader–follower sequencing, with each party in a “win–win” situation relative to simultaneous early play.