ABSTRACT We experimentally examine the effects of cheap talk communication and information structure on trust and reciprocity in an infinitely repeated favor exchange game without immediate reciprocity. Theory predicts that full trust is not incentive compatible under private information, in contrast to the public information setting. Yet, our results show that while public information yields better outcomes, subjects under private information still exhibit substantial trust and reciprocity, achieving average payoff efficiency exceeding 80% of the maximum possible. Allowing subjects to communicate freely through unrestricted text chat reinforces this outcome, whereas structured communication using pre‐formulated messages has no significant effect. Content analysis suggests that free‐form communication is effective in enabling subjects to develop a better understanding of one another's messages. Strategy analysis indicates that subjects predominantly adopt the strategy that achieves the socially optimal outcome, even when it is not an equilibrium under private information. This provides a strategic rationale for the observed levels of trust and reciprocity and suggests that subjects are not always beholden to incentive‐compatibility. A sophisticated class of strategies explains a significant proportion of the data only under private information. This explains the lower frequency of trusting and reciprocal behaviors in this setting, as these strategies constrain such actions.

ABSTRACT This paper uses a quasi‐experimental design, a unique dataset of physical books, and a sample of vintage former bestsellers to examine copyright's impact on price, sales, and availability in the book market. We find that copyright increases sales, raises price, especially for top‐selling titles, and increases the number of old titles being sold in the market. These findings challenge the traditional access/incentive tradeoff and the view that society benefits when titles enter the public domain. Policy implications include reconsideration of uniform copyright terms and exploration of renewal‐based systems that allow rights holders to self‐select into extended protection.

ABSTRACT Many successful brand manufacturers, such as Apple and Nike, have invested extensively in international networks of direct retail outlets. Systematic evidence on this development has been lacking because official foreign direct investment (FDI) data are classified according to the main industry of the investing firm and therefore most branded retail investments are classified as manufacturing or wholesale trade. Using novel project‐level data, we show that direct retail FDI now accounts for more than 5% of global FDI flows—about five times the FDI in official data. We provide empirical evidence that FDI in branded retail outlets is driven by brand owners’ need to control brand value, especially when it is difficult to contract and monitor sales and service quality.

ABSTRACT We experimentally investigate the spillover effects of monitoring. In a controlled laboratory experiment, participants simultaneously self‐report their payoffs in two tasks. Holding lies in the untargeted task to never be penalized, we vary the observability and the punishment for lying in the targeted task as follows: (1) the experimenter cannot observe the random draw that determines the payoff the participant should report, (2) the experimenter observes the participants' random draw, and (3) a penalty is imposed on the participant if the self‐reported payoff and the random draw are not consistent. The results showed that while participants lied less in the targeted task given a higher level of monitoring, they significantly increased their lies in the untargeted task.

ABSTRACTNew business formation is a key driver of regional transformation and development. While we know that a region's attractiveness for new businesses depends on its resources, infrastructure, and human capital, we know little about the role of local business networks in promoting or impeding the birth of new firms. We construct local business networks connecting more than 350 million nodes consisting of managers, owners, and firms using data on the universe of German businesses. Differentiating between firms founded by serial and de novo entrepreneurs and different network measures (average degree and transitivity of the largest component), we show that the connectedness between actors within a region matters for firm entry and individual firm performance. We show a positive relationship between a region's connectedness and firm entry by serial entrepreneurs. Networks are also linked to individual firm performance, especially in terms of larger entry size of de‐novo firms and higher employment growth for both de‐novo and serial entrepreneurship.

ABSTRACTThis paper studies large banks' incentives to engage in misconduct by abusing their dominant position in the market for loans and by mis‐selling an add‐on financial product to depositors. We draw new connections between stability‐focused prudential regulation and misconduct by studying the impact of higher capital requirements on misconduct incentives. Higher capital requirements are more likely to increase misconduct incentives when incumbents enjoy a significant equity funding cost advantage over challenger banks. These results highlight the importance of regulatory coordination in the areas of bank conduct and financial stability.

ABSTRACTUsing comprehensive microdata from the Chinese Patent Survey, we examine the appropriation strategies that firms use to capture value from their innovations and assess the motivations underpinning these strategies. Although Chinese firms exhibit a robust overall preference for patents, we find that firms often use patents for reasons other than directly protecting intellectual assets from competitors. In particular, our results suggest that firms utilize patents to secure external financing and negotiate third‐party production contracts, while relying on secrecy and/or first mover advantage to protect against competitor imitation. Furthermore, we find that firms pursuing the most expensive R&D projects exhibit a relative preference for secrecy over patents, consistent with theories that predict the use of secrecy to protect a firm's most valuable intellectual assets. Our results provide novel insights into China's recent patenting surge and help inform policy efforts to encourage domestic innovation in developing economies.

ABSTRACTWe study mechanism design with flexible but costly information acquisition. There is one principal and four or more agents, who share a common prior belief over a set of payoff‐relevant states. The principal proposes a mechanism to the agents, each of whom can then acquire information about the state by privately designing a signal device. As long as it is costless for each agent to acquire a signal that is independent of the state, there exists a mechanism that allows the principal to implement any social choice rule at zero information acquisition cost for the agents.

ABSTRACTWe propose a theory of strategic corporate social responsibility (CSR). Value‐maximizing shareholders play an industry CSR game where they can opt for an objective function that extends beyond shareholder value, thus conditioning other strategic firm decisions. The theory provides a formalization of the “doing well by doing good” adage in an industry setting. We develop conditions such that the CSR game is a pure coordination game, which provides a natural and novel theory of strategic leadership in CSR: By committing to a CSR objective function, a first mover leads the industry to a Pareto superior equilibrium. The theory can rationalize recent evidence on correlated industry‐wide CSR adoption, and carries implications for competition policy.