Microeconomic Theory
Game Theory

Microeconomic Theory
Game Theory
Industrial Organization
Law and Economics
Health Economics

May 1999 (Oral), Microeconomic Theory, Mathematical Economics (distinction)
May 1998 (Written), Microeconomics and Macroeconomics

Patent Races and Disclosure: Theory and Testable Implications

Professor Dirk Bergemann
Professor Donald Brown
Professor Stephen Morris

May 2003

Ph.d. Economics Yale University, Expected May 2003
M.Phil., Economics Yale University, May 1999
M.A., Economics Yale University, May 1998
M.A., summa cum laude, Economics Hebrew University, June 1997
B.A., cum laude, Mathematics Hebrew University, June 1992

Raymond Powell Teaching Prize (September 2002)
Yale Summer Fellowship (Summer 2002)
Yale Dissertation Fellowship (Fall 2001)
Carl Arvid Anderson Fellowship (2000-2001).
Cowles Foundation Prize (1999)
Yale University Fellowship (1997-2002)
Foundation for Medical Research and Development for Health Services Fellowship (1996)
Hebrew University Fellowship (1993-1994)

Teaching Assistant:
   Graduate Microeconomic Theory, Yale University, Spring 2002 and Spring 2000
   Undergraduate Introductory Microeconomics, Yale University, Fall 2000 and Fall 1999
   An Introduction to Optimization, graduate summer course, Yale University, Summer 1999
   Graduate Microeconomic Theory, Hebrew University, Fall 1993, Spring 1994, Fall 1994
Instructor:
   Mathematics for Economists, Yale University, Summer 2000
   Undergraduate Microeconomics, Hebrew University, Spring 1996
   Mathematics (for gifted high school students), Bar Ilan University, 1992- 1996
   Nature reserves tours, Israeli Defense Force and the Society for the Protection of Nature, 1988-1989

Research assistant, Health Policy Scholars Program, Yale University, Summer 1998
Research assistant, Center for Rationality and Interactive Decision Theory, Hebrew University, 1993- 1995

• "Defensive Publications in a Patent Race", Yale University, May 2002 (Revised and Resubmitted to RAND Journal of Economics)
• "Testable Implications of a Defensive Publications Model", Yale University, 2002
• "Testable Implications of a Simple Moral Hazard Model", Yale University, 2000
• "Screening for Breast Cancer", Yale University, 1999

NBER General Equilibrium conference, New York University, 2000

Appropriate protection of intellectual property is an important element for the performance of a modern economy. Patents are the most well known means of securing intellectual property rights. The use of publications as an alternative to patents has become increasingly common. Publishing changes the prior art, thus affecting the patentability of related innovation. While publications do not grant property rights to the publishing firm, they ensure that no one else is granted the right and make it more difficult for competitors to secure a patent. My dissertation introduces publication to a patent race and determines its role as a strategic disclosure device. It provides an explanation for this type of strategic disclosure and studies its effect on R&D and on patent policy. In the second chapter of this work, testable implications of the defensive publications model are derived. The method described in the second chapter is then applied to a moral hazard model.

The model presented in the first chapter is a multi-stage patent race model in which the competitors can strategically publish research results. Two identical firms compete over an innovation. The winner of the race is the first to achieve n innovative steps above the prior state of the art. Innovation is random and modeled as a Poisson process. If a firm chooses to publish, it increases the prior art, thus increasing the number of innovation steps the patenting firm would need to achieve.

The equilibrium use of publications is first investigated in a model with a constant investment policy. In the Markov perfect equilibrium, firms publish when they are behind in the race and their rival is close to winning it. Publication sets the leader back and gives the follower a chance to catch up. I refer to this type of publications as defensive publications. Comparative static results are also obtained: firms are more likely to publish the more patient they are, and the higher their instantaneous probability of success is. The model is generalized to accommodate a joint endogenous decision on the intensity of research and publications. Publication is found to be a strategic substitute to investment. Interestingly, this leads to ambiguous welfare implications regarding the use of publications.

The goal of the second chapter is to investigate whether the publications model is empirically refutable and to determine if a particular data set is consistent with equilibrium behavior. Based on the insights derived from the theory of revealed preference, I derive nonparametric testable implications of the model and show there exist investment policies that are inconsistent with the equilibrium, i.e. the model is empirically refutable. The necessary data requirement would have to include investment levels and publications along the equilibrium path of a patent race. If we observe data that are consistent with the model, then it is possible to construct a cost function that rationalizes the data.

In the third chapter, a moral hazard model of mutual insurance is studied. In the model, there are infinitely many identical consumers. Wealth can take two possible values. An agent can choose a private action that affects his distribution of wealth. A choice of high effort increases the probability of the good state, but is more costly. Agents can insure by buying securities that pay a unit of consumption contingent on the realization of their random wealth. An insurance company that serves as an intermediary sells the assets. Due to the asymmetric information, an insurer cannot set prices that depend on the effort level unless he imposes incentive compatibility constraints. If the data only contain information related to agents` optimal effort choice, but no information regarding the off equilibrium effort level, then the testable implications are minimal. The only implications are the following weak accounting restrictions: a budget constraint, actuarially fair prices and consumption smoothing. However, if additional information is observed on the probabilities of loss associated with the effort level that is not chosen in equilibrium, then further restrictions can be derived. There are data sets where the budget constraint, fair prices and the consumption smoothing conditions are satisfied but the data cannot be rationalized by our simple moral hazard model. Under both assumptions on the data, if the data can be rationalized then I construct a rationalizing utility function. The results of this paper suggest that the testable implications of moral hazard models may be minimal if only variables related to the equilibrium path are observed.