Rewarding Mediocrity? Optimal Regulation of R&D Markets with Reputation Concerns

Ishida, Junichiro; Chen, Chia-Hui

Institute of Social and Economic Research Discussion Papers, 2017, 994, 1-29

Number of Access:548（2025-11-04 13:16 Counts）

Identifier to cite or link to this item: https://hdl.handle.net/11094/60629

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Title
Rewarding Mediocrity? Optimal Regulation of R&D Markets with Reputation Concerns
Creator
NRID
1000040324222 1000040324222
ORCID
0000-0002-0674-0216 0000-0002-0674-0216
researchmap permalink
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Scopus Author ID
36927932200 36927932200
CreatorName
Ishida, Junichiro
NRID
1000020768238 1000020768238
CreatorName
Chen, Chia-Hui
Subject
dynamic signaling
career concerns
exploration
exploitation
deadline
Abstract
In this paper, we consider a dynamic signaling model of an R&D market in which a researcher can choose either a safe project (exploitation) or a risky project (exploration) at each instance. We argue that there are substantial efficiency gains from rewarding minor innovations above their social value and further that it is indeed superior to rewarding major innovations directly, even when those minor innovations are intrinsically valueless in themselves. When only major innovations are rewarded, the R&D market eventually shuts down due to a version of the lemons problem. Rewarding minor innovations is actually conducive to major innovations as it induces self-sorting among researchers, which is essential in providing time and resources necessary for more productive ones to take riskier but more ambitious approaches. This result draws clear contrast to the static counterpart where such a scheme can never be optimal. Our model also exhibits reputation dynamics which capture a pervasive view in academia that “no publications are better than a few mediocre publications” at an early stage of one’s career.
Publisher
The Institute of Social and Economic Research, Osaka University
Source Title
Institute of Social and Economic Research Discussion Papers
Volume (Issue)
994
Page
1-29
Date of Issued
2017-03-23
Language
English
Handle URL
https://hdl.handle.net/11094/60629
Relation.references
URI
https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2017/DP0994.pdf
Access Rights
metadata only access
Category
ディスカッション／ワーキング・ペーパー DP/WP
Institute of Social and Economic Research Discussion Papers