Empirical research has reached the puzzling conclusion that stronger patents do little or nothing to encourage innovation. We show that the facts that have led to the assumption of fixed cost in the discovery process can be equally well explained by a standard model of diminishing returns. This may explain much of the misunderstanding of the (supposedly positive) role of monopoly in innovation and growth, thereby accounting for the empirical puzzle.

Using personnel data from a large U.S. retail firm, we examine whether the race or ethnicity of the hiring manager affects the racial composition of new hires. We exploit manager turnover to estimate models with store fixed effects and store-specific trends. First, we find that all nonblack managers-that is, whites, Hispanics, and Asians-hire more whites and fewer blacks than do black managers. This is especially true in the South. Second, in locations with large Hispanic populations, Hispanic managers hire more Hispanics and fewer whites than do white managers. We also examine possible explanations for these differential hiring patterns. (c) 2009 by The University of Chicago. All rights reserved.

We study repeated games with frequent actions and frequent imperfect public signals, where the signals are aggregates of many discrete events, such as sales or tasks. The high-frequency limit of the equilibrium set depends both on the probability law governing the discrete events and on how many events are aggregated into a single signal. When the underlying events have a binomial distribution, the limit equilibria correspond to the equilibria of the associated continuous-time game with diffusion signals, but other event processes that aggregate to a diffusion limit can have a different set of limit equilibria. Thus the continuous-time game need not be a good approximation of the high-frequency limit when the underlying events have three or more possible values.