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Catherine Bobtchef - Paris School of Economics

Webinar and face-to-face

" Negative results in science : when disclosure hurts ” co-authored with
Thomas Mariotti and Raphaël Levy

Abstract :
Two firms receiving independent signals on a risky project with common value compete to be the first to innovate. We characterize the equilibrium of this preemption game in two alternative environments : (a) one where signals on the project are public, i.e., observed by the competitor, (b) one where signals are private. We show that firms tend to invest sooner when signals are public. First, firms then have more information, hence learn faster, which prompts investment, the more so when preemption concerns are strong. Second, private signals create a \textitwinner’s curse problem : investing first implies that the other firm has abstained from investing, possibly because she has privately received adverse information about the project. This tends to delay investment, as a firm wants to gather more evidence in support of the project as a compensation. We show that the equilibrium payoff is generically larger when signals are public. However, a planner who primarily cares about avoiding investment when it is inefficient sometimes prefers signals to be private, for false negatives are then less likely. This suggests that the mandatory disclosure of negative scientific results (making signals public) can be harmful from a social perspective when competition is strong.œ