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→A.2: Lobbying and policy choice
==Format and Originators==
The 2008 2007 BPP field exam had the following format:
*Morning (3 hrs): Question A.1 or A.2 (2hr), Question B.1 or B.2 (1hrs)
*Afternoon (3 hrs): Question C.1 or C.2 (1hr), Question D (2hrs)
==Questions==
===A.l1: Managerial Productivity & Incentives===
Consider Holmstrom's 1982 managerial model, except that the manager knows her productivity parameter from the start. The manager lives for two periods <math>(t = 1, 2)\,</math>. Once she is employed by a firm in period <math>t\,</math>, the firm's production cost is <math>C_t = \Beta - e_t\,</math>, where <math>\Beta\,</math> is the her productivity parameter and <math>e_t > \ge 0\,</math> is the effort she exerts at a cost of <math>\phi(e_t)\,</math> (with <math>\phi' > 0\,</math> and <math>\phi'' > O\,</math>). <math>C_t\,</math> is observable but not verifiable, but <math>\Beta\,</math> and <math>e_t\,</math> are not observed by the firms. The manager's utility is <math>\sum_{t=1}^2 \delta^{t-1}[I_t -\phi(e_t)]\,</math>, where <math>I_t\,</math> is her income at time <math>t\,</math> and <math>\delta\,</math> is her discount factor. Firms are competitive (they derive the same benefit from the manager's activity) and the manager cannot commit to staying with the same firm. It is common knowledge that <math>\Beta \in \{\underline{\Beta}, \overline{\BBeta}\}\,</math>, where <math>\overline{\BBeta} > \underline{\Beta} > 0\,</math>, and <math>Pr(\Beta = \overline{\BBeta})=p\,</math>. Let <math>\Delta\Beta \equiv \overline{\BBeta} - \underline{\Beta}\,</math>, and assume that <math>\phi(\Delta\Beta) < \delta\Delta\Beta\,</math>.
a.) Derive the best separating equilibrium for the manager (the manager offers the contract). In your answer, comment on the "intuitive criterion".
<math>V_i(x) - f_i - c_i\,</math>
with <math>V_1 = - x^2 + 1\,</math>, and <math>V_2 = -x^2 + 2x\,</math>. Note the fixed costs are a waste in that the policymalcer policymaker does not benefit from them (nor does anyone else).
The timing of interaction in this society is as follows. 1) Both interest groups decide, simultaneously and noncooperatively, whether to organize. 2) The organization decisions become known to everyone, and whomever is organized makes contributions <math>c(x)\,</math> to the policymaker in the form of a schedule of contributions contingent on the policy that is finally chosen. If both groups are organized, contributions are made simultaneously and noncooperatively, and you should assume that a Truthful Nash equilibrium is played. 3) Knowing the contributions offered, the policymaker selects policy. All payoff functions and the structure of the interaction are common knowledge.
Outline a model which would shed light on self-regulation, including answers to the above questions. You should be specific about the model structure (e.g. players, preferences, game form, information, and so on) and justify why the model is an appropriate one for studying self-regulation. In addition, discuss what you believe the equilibrium to the model would be. Finally, discuss the predictions and insights which would be generated from your model. Note: you do not need to solve the model; simply discuss the proposition(s) you expect that could be derived and the intuition(s) behind it (them).
===C.l1: Patent Policy & Firm Strategy===
On April 30, 2007, the US Supreme Court issued a decision that has been widely interpreted as raising the level of "nonobviousness" required to obtain a patent, thereby making patents "harder to obtain and defend," according to the New York Times (5/1/07).
