Abstract

A lack of sufficient diversification in research strategies has been identified as an important problem for delegated research. We show that this problem can be solved by local competition (such as bribery, lobbying, rent seeking, competition at the patent office) among players who apply the same search strategies or develop the same design. Such competition can restore full efficiency in the non-cooperative equilibrium. Local competition interacts with the choice of whether to cluster or diversify, and rather than adding a further inefficiency to the existing ones, it eliminates inefficiency. The results are robust and hold under simultaneous search strategy choices as well as for sequential choices.

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