Understanding the Silicon Valley Phenomena

Silicon Valley, Innovation enterprises, Tournament games

Why Lying Pays: Truth Bias in the Communication with Conflicting Interests

We conduct experiments of a cheap-talk game with incomplete information in which one sender type has an incentive to misrepresent her type. Although that Sender type mostly lies in the experiments, the Receiver tends to believe the Sender's messages. This confirms ``truth bias'' reported in communication theory in a one-shot, anonymous environment without nonverbal cues. These results cannot be explained by existing refinement theories, while a bounded rationality model explains them under certain conditions. We claim that the theory for the evolution of language should address why truthful communication survives in the environment in which lying succeeds.Cheap talk, Communication, Private information, Experiment, Equilibrium refinement, Bounded rationality, Truth bias

Property Rights and the New Institutional Arrangement for Product Innovation in Silicon Valley

This paper surveys researches on the new institutional arrangements for product innovation emerging in Silicon Valley. Special reference is made to the characteristics that go beyond the traditional property rights framework. First, the complicated patterns in allocation of control rights observed in VC contracts are examined to show the limit of Grosman-Hart-Moore framework. Second, the unique informational arrangement in Silicon Valley is explained as a second-best solution to the team-theoretic coordination problems in modular environments. Third, the paper examines the mechanism of ex post evolutionary formation of a product system. The paper concludes by suggesting future direction for research, including further research on the role of innovation commons in this process.

Understanding the Silicon Valley phenomena

This paper analyzes the ‘Silicon Valley model’ as a novel economic institution in the domain of technological product system innovation such as computers. We focus on the information structural relationship as well as governance relationships between venture capitalists and a cluster of entrepreneurial firms. The informational conditions under which the Silicon Valley model is efficient are identified, leading to understanding the significance of standardization of interfaces, modularization and information encapsulation. We then examine the governance/incentive aspect of the model by integrating the models by Aoki, and Baldwin and Clark to give comparative statics results regarding the optimal number of entrepreneurial firms competing in the same component product. The analyses enable us to evaluate the applicability of the model beyond specific localities and industries

Coordinating Antitrust Policies Against International Cartels

Theoretical research on leniency programs has so far focused attention on cartels formed within a country the purpose of the paper is to analyze the situation where a cartel is formed internationally. We consider a model with two firms operating in two countries. The antitrust authority (AA) in each country chooses either to implement a leniency program or to use traditional investigation to detect/deter cartel activity. Given the combination of antitrust policies, the two firms play market games simultaneously in both countries. Assuming that the information on the existence of a cartel in one country spills over to the other, we analyze a strategic interdependency faced by the AAs. Several policy objectives of the AA are considered. We find that if the objective is to maximize revenues from the penalty imposed on cartels, an asymmetric equilibrium exists in which one country chooses to free-ride the other's choosing a leniency program.Cartels

Why Lying Pays: Truth Bias in the Communication with Conflicting Interests

We conduct experiments of a cheap-talk game with incomplete information in which one sender type has an incentive to misrepresent her type. Although that Sender type mostly lies in the experiments, the Receiver tends to believe the Sender's messages. This confirms "truth bias" reported in communication theory in a oneshot, anonymous environment without nonverbal cues. These results cannot be explained by existing refinement theories, while a bounded rationality model explains them under certain conditions. We claim that the theory for the evolution of language should address why truthful communication survives in the environment in which lying succeeds.

"Communication and Coordination in Organizations" (in Japanese)

This paper analyzes a model of coordination where two agents attempt to coordinate their actions through communication. One agent (Sender) is engaged in finding the true state of nature in a stochastic environment and the action that best fits the state. The other agent (Receiver) in turn tries to ``understand'' the Sender's message and chooses his own action. Since the communication succeeds only probilistically, so does the coordination. In our model, two different modes of coordination are identified: the integral-type coordination based on the communication of soft information and the default-type coordination based on the predetermined default value. We find that the agents might choose the latter mode of coordination when the cost arising from the failed communication is high relative to the benefit from coordinating on the state-contingent best actions. Applications to the economics of organization are also discussed.

Normativity, Institutional Change and Free Energy Principle―An Essay in Economics of Institutions―

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Increasing Complexity of Artifacts and the Role of Product Architecture (Japanese)

This paper explains the concept of product architecture in the context of increasing complexity of artifacts. We first explore the process where artifacts have gained complexity. Historically, during the development of human-artifact interaction, it was critical to effectively combine mechanical information processing of artifacts and contextual information processing of humans. Dramatic decreases in mechanical information processing cost due to IT development induced hierarchical subdivision of artifacts. As a result, artifacts now have a modular structure consisting of numerous parts. This brought to the fore the question of how to solve the complicated coordination/integration problem between development of whole product system and that of individual parts. There are two ways of classifying solutions to this problem. On the one hand, there is a distinction between coordination by humans and coordination by product architecture. On the other hand, there is distinction between decentralized coordination through markets and cooperative coordination via organizations or networks.

"Increasing Complexity of Artifacts and the Role of Product Architecture"(in Japanese)

The purpose of the paper is twofold: One is to explain the concept of product architecture in the context of increasing complexity of artifacts; The other is to examine the condition under which the open-standard strategy is likely to be adopted. Dramatic decreases in mechanical information processing cost due to IT development induced hierarchical subdivision of artifacts with a modular structure consisting of numerous parts. This brought to the fore the question of how to solve the complicated coordination/integration problem between development of whole product system and that of individual parts. There are two ways of classifying solutions to this problem: One is the distinction between coordination by humans and coordination by product architecture; The other is the distinction between decentralized coordination through markets and cooperative coordination via organizations or networks. We argue that precommitted standardization and open development strategies are complements. We then set up a model for examining the problem faced by a monopolist with a core technology to decide to choose between open-standard strategy or closed-integral strategy. Some comparative analytic results are provided.