Semi-Public Contests

The process of innovation is driven by two main factors: new inventions and institutions supporting the transformation of inventions into marketable innovations. This paper proposes a new institution, called a semi- public contest, that has been neglected by the economic literature but exists frequently in practice. I show how semi-public contests can mitigate a dilemma that arises at a very early stage of innovative activity and specify the general requirements for situations in which a semi-public contest can increase welfare. This paper's results suggest that governments promote knowledge about the semi-public contest mechanism but refrain from direct public funding of contests.Innovation;Contests;Entrepreneurs;Institutional Design;Business Plan Competitions;Auctions

Competition and Mergers among Nonprofits

Should mergers among nonprofit organizations be regulated differently than mergers among for-profit firms? The relevant empirical literature is highly controversial, the theoretical literature is scarce. We analyze the question by modeling duopoly competition with quality-differentiated goods. We compare welfare effects of mergers between firms with the effects of mergers between nonprofits dominated by consumers, workers, suppliers, and pure donors. We find that mergers both among firms and among most types of nonprofits do not increase welfare. Mergers among consumerdominated nonprofits, however, can improve welfare. These results imply for competition law and regulation that “nonprofit” might be too crude a label for organizations with varying goals. Consequently, mergers among certain nonprofit organizations should not necessarily be treated in the same way as mergers among for-profit firms – a notion that is absent in current merger guidelines both in the US and the EU.Nonprofits;Mergers;Antitrust;Governance;Owner Objectives;Notfor- profit Sector;Organizational Choice

Imperfect Information, Democracy, and Populism

The modern world is complex and difficult to understand for voters, who may hold beliefs that are at variance with reality. Politicians face incentives to pander to voters' beliefs to get reelected. We analyze the welfare effects of this pandering and show that it entails both costs and benefits. Moreover, we explore optimal constitutional design in the presence of imperfect information about how the world works. We compare indirect democracy to direct democracy and to delegation of policy making to independent agents. We find that indirect democracy is often welfare maximizing.Imperfect information;beliefs;democracy;populism;accountabil- ity;experts

Firms, Nonprofits, and Cooperatives: A Theory of Organizational Choice

Abstract This paper formalizes the difference between firms, nonprofits, and cooperatives and identifies optimal organizational choice. In a model of quality provision, we find a clear ranking of quality produced: Firms provide lowest and nonprofits highest levels of quality. Efficiency, however, depends on the competitive environment, the decision making process and technology. Cooperatives are optimal when decision making costs are low. Else, cooperatives are increasingly dominated by either nonprofits or firms (depending on the incremental costs of quality production). Finally, changes in the competitive environment affect organizational choice: Increased competition induces a shift towards firm organization and away from nonprofits.Theory of the Firm;Cooperatives;Nonprofits;Organizational Choice;organizational change

An Auction Market for Journal Articles

Economic articles are published very slowly. We believe this results mainly from the poor incentives referees face. We recommend that an auction market replace the current system for submitting papers and demonstrate a strict Pareto-improvement of equilibrium. Besides the benefits of speed, this mechanism increases the average quality of articles and journals and rewards editors and referees for their effort. In addition, the "academic dollars" for papers sold at auction go to the authors, editors and referees of cited articles. This income indicates academic productivity (facilitating decisions on tenure and promotion); its recirculation to journals further stimulates quality competition.Academic Journals;Academic Productivity;Market Design. JEL codes

How Does Clubs' Organizational Design Affect Competition Among Clubs?

We analyze competition among clubs in which the status of club members is the crucial added value accruing to fellow club members through social interaction within the club (e.g. in country clubs, academic faculties, or internet communities). In the course of competition for new members, clubs trade off the effect of entry on average status of the club and candidates’ monetary payment via an entrance fee. We show that the best candidates join the best clubs but they pay higher entrance fees than some lowerranking candidates. We distinguish among various decision rules and organizational set-ups, including majority voting, unanimity, and meritocracy. We find that, from a second-best welfare perspective, the unanimity rule leads to inefficient exclusion of some candidates, while meritocracy leads to inefficient inclusion. Our main policy implication is that consensus-based clubs, such as many academic faculties in Europe, could improve the well-being of their members if they liberalized their internal decision making processes.club theory;status organizations;design of decision making;collective action

How does Clubs' Organizational Design Affect Competition Among Clubs?

We analyze competition among clubs in which the status of club members is the crucial added value accruing to fellow club members through social interaction within the club (e.g. in country clubs, academic faculties, or internet communities). In the course of competition for new members, clubs trade off the effect of entry on average status of the club and candidates’ monetary payment via an entrance fee. We show that the best candidates join the best clubs but they pay higher entrance fees than some lowerranking candidates. We distinguish among various decision rules and organizational set-ups, including majority voting, unanimity, and meritocracy. We find that, from a second-best welfare perspective, the unanimity rule leads to inefficient exclusion of some candidates, while meritocracy leads to inefficient inclusion. Our main policy implication is that consensus-based clubs, such as many academic faculties in Europe, could improve the well-being of their members if they liberalized their internal decision making processes.club theory;status organizations;design of decision making;collective action

Interconnection and Competition Among Asymmetric Networks in the Internet Backbone Market

We examine the interrelation between interconnection and competition in the internet backbone market.Networks asymmetric in size choose among different interconnection regimes and compete for end-users.We show that a direct interconnection regime, Peering, softens competition compared to indirect interconnection since asymmetries become less influential when networks peer.If interconnection fees are paid, the smaller network pays the larger one. Sufficiently symmetric networks enter a Peering agreement while others use an intermediary network for exchanging traffic.This is in line with considerations of a non-US policy maker.In contrast, US policy makers prefer Peerings among relatively asymmetric networks.Internet Backbone;Endogenous Network Interconnection;Asymmetric Networks;Two-Way Access Pricing

An Auction Market for Journal Articles

Economic articles are published very slowly. We believe this results from the poor incentives referees face. We recommend that an auction market replace the current, push system for submitting papers and demonstrate that our proposed market has a stable, Pareto-improving equilibrium. Besides the benefits of speed, this pull mechanism increases the quality of articles and journals and rewards referees for their effort. Although the auction price gives a prior on a paper's future value, its actual value|as a published article|depends on later citations. Since the auction price of later papers goes to the editors, authors and referees of earlier, cited articles, "auction earnings" give a direct measure of the value of articles, journals (the sum of articles) and academics - as authors, editors and reviewers - rewarding good writing, decisions and effort, respectively.Academic Journals;Academic Productivity;Market Design.