MILOEK

Militärökonomische Forschung und Lehre
Research and Courses in Economics of Defense

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Information asymmetries between the political level of the society and individuals or corporations ─ claiming to need additional support ─ may be exploited by activities known as rent seeking. For example, what is the optimal protection period for immaterial property rights ─ the “patent’s dilemma”? On the one side, ex ante a patent’s protection speeds up innovation because it offers a temporary monopolistic position enabling the successful innovator to reap super-profits. On the other side, ex post the monopolistic position slows down spreading the innovation and its improvement by competitors. Thus, the innovator has an incentive to exaggerate the time where the invention must be protected by patents. In contrast, the competitors will try to reduce this period.

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Similar problems, known as adverse selection or moral hazard, may arise in single transaction constellations with agents ─ hired by principals to perform a task. The coordination problem arises because an agent possesses (compared to the principal) superior information in regards to a transaction feature decisive for his performance ─ hence, for the compensation. The quality of this feature may be given (ex ante asymmetry) or may still be influenced by the agent’s action / effort (ex post asymmetry).

n	Even without asymmetric information, the characteristics of goods may prohibit efficient levels when relying on voluntary transactions.

○	When average costs are decreasing until the saturation point of demand is reached, this favors the incumbent supplier in a way no fair competition may be established.

○	When a good is non-rivalrous, it offers the incentive to a potential buyer to deny its usefulness and evade a compensation for the supplier (even if the latter knows the true willingness to pay of this potential client).

○	The failure to successfully establish or enforce the property for a rivalrous resource may lead to the problem of depletion, i.e., each user tries to get as much as possible.