The management of innovation under ambiguity
Recent developments in decision-theory have shed light on the concept of Knightian Uncertainty, or Ambiguity. However, this apparatus is still not fully integrated in economic theory. This presentation argue that the analysis of innovation and Research and Developments will gain substantial insights by modelling these activities as decision-making under Ambiguity. The main subject of of interest of this paper is the allocation of the property rights of a discovery. The first part of the analysis draws on a paper of Aghion and Tirole, The Management of Innovation, where they look at the optimal allocation of the property rights between a Research Unit and its financier. Allowing for heterogeneous beliefs affects the level of effort of the two agents, the sharing rule of the revenue of a discovery and the allocation of property rights. The second part follows Savage's framework to model an innovation competition between multiple researchers. The presence of Ambiguity impacts the behaviour of the agents and the allocation of the property rights in a way that could not be captured assuming Risk.
Savage Innovation Uncertainty Risk Ambiguity Bayesianism neo-Bayesianism Research and Development Property rights Industrial Organization