Is more novel research always desirable? We develop a model in which knowledge shapes society's policies and guides the search for discoveries. Researchers select a question and how intensely to study it. The novelty of a question determines both the value and difficulty of discovering its answer. We show that the benefits of discoveries are nonmonotone in novelty. Knowledge expands endogenously step-by-step over time. Through a dynamic externality, moonshots - research on questions more novel than what is myopically optimal - can improve the evolution of knowledge. Moonshots induce research cycles in which subsequent researchers connect the moonshot to previous knowledge.

We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative implies progress that has to be converted to a solution. As time runs out, the chances of converting it in time shrink. We show that the agent may return to the initial idea after having left it in the past to explore alternatives. Our model helps explain so-called false starts. To finish fast, the agent delays exploring alternatives reducing the overall success probability.

I study a continuous-time moral hazard problem with learning about a two-stage project of unknown quality. The first-stage arrival time is informative but not conclusive about the project’s quality. Due to the informativeness, the optimal contract features a combination of continuation value and intermediate bonus payments as a reward. There is a negative correlation between the first success time and the share of bonus payments in the reward. Second-stage deadlines adjust to the first-stage success time: early successes are rewarded with longer deadlines in the second stage. When agent replacement between stages is possible, the principal will replace the agent if the first success arrives late.

Maintaining good ratings increases the profits of sellers on online platforms. We analyze the role of strategic pricing for ratings management in a setting where a monopolist sells a good of unknown quality. Higher prices reduce the value for money, which on average worsens reviews. However, higher prices also induce only those consumers with a strong taste for the product to purchase, which on average improves reviews. Our model flexibly parametrizes the two effects. This parametrization can rationalize the observed heterogeneity in the relationship between reviews and prices. Based on an analytic characterization of the optimal dynamic pricing strategy, we study a platform's choice of the sensitivity of its rating system to incoming reviews. The optimal sensitivity depends on the effect of prices on reviews and on how the platform weighs consumers and sellers in its objective. While sellers always benefit from more sensitivity, consumers may suffer from higher prices and from slower learning from reviews due to endogenously emerging price and rating cycles.

We investigate the impact of prices on ratings using Airbnb data. We theoretically illustrate two opposing channels: higher prices reduce the value for money, worsening ratings, but they increase the taste-based valuation of the average traveler, improving ratings. Results from panel regressions and a regression discontinuity design suggest a dominant value-for-money effect. In line with our model, hosts strategically complement lower prices with higher effort more when ratings are relatively low. Finally, we provide evidence that, upon entry, strategic hosts exploit the dominant value-for-money effect. The median entry discount of seven percent improves medium-run monthly revenues by three percent.

A seller serving two generations of short lived heterogeneous consumers sells a product under uncertain demand. We characterize the seller's optimal pricing, taking into account that the current period's price affects the information transmission to the next period consumers via consumer ratings. While the seller always prefers to generate more information, it is not necessarily in the consumers' interest. We characterize situations in which consumer surplus and welfare are decreasing in additional information. We provide conditions under which aggregate consumer surplus and welfare are lower with than without a rating system.

We study social distancing in an epidemiological model. Distancing reduces the individual's probability of getting infected but comes at a cost. Equilibrium distancing flattens the curve and decreases the final size of the epidemic. We examine the effects of distancing on the outset, the peak, and the final size of the epidemic. First, the prevalence increases beyond the initial value only if the transmission rate is in the intermediate region. Second, the peak of the epidemic is non-monotonic in the transmission rate. A reduction in the transmission rate can increase the peak. However, a decrease in the cost of distancing always flattens the curve. Third, both a reduction in the transmission rate as well as a reduction in the cost of distancing decrease the final size of the epidemic. Our results suggest that public policies that decrease the transmission rate can lead to unintended negative consequences in the short run but not in the long run. Therefore, it is important to distinguish between interventions that affect the transmission rate and interventions that affect contact rates.

We study an SIR model with endogenous behavior and a time-varying cost of distancing. We show that a steep increase in distancing cost is necessary for a second wave of an epidemic to arise. As a special case of the model with changing cost, we study distancing fatigue---the distancing cost increases in past distancing---and show that it cannot generate a second wave. Moreover, we characterize the change in the distancing cost necessary for the slope of prevalence to change its sign. This characterization informs policymakers: (i) of the required strictness of mitigation policies to cease the increase of prevalence, (ii) when and how policies can be lifted to avoid a second wave, and (iii) whether public holidays are likely to generate another wave of the epidemic. Finally, we illustrate the implementation of desirable time-varying transmission rates through time-varying distancing cost with endogenous equilibrium distancing.

We develop a structural empirical model of procurement auctions with private and common value components and bidder asymmetries in both dimensions. While each asymmetry can explain the dominance of a firm, they have opposite welfare implications. We propose a novel empirical strategy to quantify the two asymmetries using detailed contract-level data on the German market for railway passenger services. Our results indicate that the incumbent is slightly more cost-efficient and has substantially more information about future ticket revenues than its competitors. If bidders’ common value asymmetry was eliminated, the median probability of selecting the efficient firm would increase by 61%-points.

We study competitive awarding procedures of short haul railway passenger services in Germany from 1995 to 2011 by means of a newly collected data set. In particular, we use regression techniques to investigate the determinants of the number of bidders, the identity of the winning bidder and the subsidy level. We find that there are more bidders when the contract duration is high and the revenue risk low. The dominant operator is more likely to win contracts if it is the incumbent, the network is large, the contract duration is high, when used rolling stock is admitted and when there are few other bidders.