by Wong Tak-Kwong. / Thesis (M.Phil.)--Chinese University of Hong Kong, 1994. / Includes bibliographical references (leaves 76-81). / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Literature Review --- p.7 / Chapter 3 --- R&D Activities and Competing for a Researcher --- p.12 / Chapter 3.1 --- Licensing Decision of a Successful Innovator --- p.16 / Benefits of Firm i with Licensing / Benefits of Firm j with Licensing / Chapter 3.2 --- Competing for the Researcher --- p.23 / Characterization of Equilibrium / Chapter 3.3 --- Concluding Remark --- p.29 / Chapter 4 --- Innovation from An Independent Researcher --- p.30 / Chapter 4.1 --- Licensing with Bargaining --- p.34 / Licensing Decision of the Researcher / Licensing Decision of Firm i / Licensing Decision of Firm j / Chapter 4.2 --- Ownership Re-allocation --- p.44 / Chapter 4.3 --- Concluding Remark --- p.48 / Chapter 5 --- An Analysis of Sequential Innovation --- p.50 / Chapter 5.1 --- Choices of Licensing and Conducting R&D --- p.55 / Decision of the Follower / Licensing by the Successful Innovator / Chapter 5.2 --- Equilibrium of Sequential R&D --- p.65 / Chapter 5.3 --- Simultaneous R&D or Sequential R&D --- p.68 / Chapter 5.4 --- Concluding Remark --- p.74 / Chapter 6 --- Conclusion --- p.75 / Chapter 7 --- Bibliography --- p.76

published_or_final_version / Surveying / Master / Master of Science

This thesis studies the decision-making of agents exhibiting time-inconsistent preferences and its implications in the context of contract theory. We take a probabilistic approach to continuous-time non-Markovian time-inconsistent stochastic control problems for sophisticated agents. By introducing a refinement of the notion of equilibrium, an extended dynamic programming principle is established. In turn, this leads to consider an infinite family of BSDEs analogous to the classical Hamilton–Jacobi–Bellman equation. This system is fundamental in the sense that its well-posedness is both necessary and sufficient to characterise equilibria and its associated value function. In addition, under modest assumptions, the existence and uniqueness of a solution is established. With the previous results in mind, we then study a new general class of multidimensional type-I backward stochastic Volterra integral equations. Towards this goal, the well-posedness of a system of an infinite family of standard backward stochastic differential equations is established. Interestingly, its well-posedness is equivalent to that of the type-I backward stochastic Volterra integral equation. This result yields a representation formula in terms of semilinear partial differential equation of Hamilton–Jacobi–Bellman type. In perfect analogy to the theory of backward stochastic differential equations, the case of Lipschitz continuous generators is addressed first and subsequently the quadratic case. In particular, our results show the equivalence of the probabilistic and analytic approaches to time-inconsistent stochastic control problems. Finally, this thesis studies the contracting problem between a standard utility maximiser principal and a sophisticated time-inconsistent agent. We show that the contracting problem faced by the principal can be reformulated as a novel class of control problems exposing the complications of the agent’s preferences. This corresponds to the control of a forward Volterra equation via constrained Volterra type controls. The structure of this problem is inherently related to the representation of the agent’s value function via extended type-I backward stochastic differential equations. Despite the inherent challenges of this class of problems, our reformulation allows us to study the solution for different specifications of preferences for the principal and the agent. This allows us to discuss the qualitative and methodological implications of our results in the context of contract theory: (i) from a methodological point of view, unlike in the time-consistent case, the solution to the moral hazard problem does not reduce, in general, to a standard stochastic control problem; (ii) our analysis shows that slight deviations of seminal models in contracting theory seem to challenge the virtues attributed to linear contracts and suggests that such contracts would typically cease to be optimal in general for time-inconsistent agents; (iii) in line with some recent developments in the time-consistent literature, we find that the optimal contract in the time-inconsistent scenario is, in general, non-Markovian in the state process X.

The dissertation consists of a set of essays which investigate optimal contracting policies in the presence of asymmetric information and uncertainty. The first essay studies how risk aversion and a sunk investment by the firm influence the contracting outcome. The government contracts with a single, risk-averse supplier for the production of output. Both the government and the firm face uncertainty with respect to the marginal production cost of the item. Prior to full-scale production, the firm performs start-up work, during which it may make a costly investment which lowers the marginal cost of production. This cost-reducing effort is not observable by the government. At the end of the start-up phase, the firm privately learns its production cost. It then reports to the government concerning this cost, and production takes place according to the terms of the contract. The primary result concerns the effect that the firm’s investment has on the private information problem. Specifically, the investment by the firm in the start-up phase reduces the firm’s incentive to misrepresent (overstate) its cost to the government later on. From this, it follows that the firm provides a strictly smaller investment than the government would prefer under the optimal contract. The second essay examines the optimal incentive contract to offer to bidders with independent private values when it is costly for the principal to monitor the agent’s cost performance ex post. Cost sharing reduces the winner’s informational rents when the bidders possess heterogeneous private cost information but also discourages the agent from providing effort to reduce cost. In addition, if cost observation is costly for the principal, cost sharing gives the agent an incentive to pad his cost ex post. The essay investigates the consequences of this ex post adverse selection problem for the optimal incentive contract. The principle results of the analysis are as follows. First, it is demonstrated that when monitoring is costly, a low cost agent will overreport his realized cost with positive probability in equilibrium. Depending upon the cost sharing parameter, the equilibrium cost reporting and monitoring strategies may either involve pooling or a mixed strategy solution. Second, we show that the optimal contract with costly monitoring generally differs from the contract which is optimal when monitoring is costless. Depending upon the characteristics of the contracting environment, the optimal contract may induce either pooling or a mixed strategy outcome ex post. If the optimal contract involves pooling, the ‘costly monitoring’ cost sharing parameter is weakly smaller than the optimal cost sharing parameter with costless monitoring. If the optimal contract induces a mixed strategy equilibrium, the optimal level of cost sharing is strictly higher than the optimal cost sharing parameter when monitoring is costless. Finally, our model predicts that, other things equal, the level of cost sharing should be higher, the smaller the number of bidders and the more diffuse the bidder’s expected costs. / Ph. D.

Huang Hongyan. / "February 2002." / Thesis (Ph.D.)--Chinese University of Hong Kong, 2002. / Includes bibliographical references (p. 134-142). / Electronic reproduction. Hong Kong : Chinese University of Hong Kong, [2012] System requirements: Adobe Acrobat Reader. Available via World Wide Web. / Mode of access: World Wide Web. / Abstracts in English and Chinese.

This dissertation is a collection of articles on the design of procurement auctions. Chapter 1 provides a primer to the subsequent three essays. Rather than addressing all the issues involved, it illustrates some basic concepts about auctions, both institutionally and theoretically. It also highlights some problems that arise when auction theory is applied to procurement auctions. / Ph. D.