Innovation Contests with Entry Auction

33 Pages Posted: 26 Feb 2010 Last revised: 20 Feb 2014

See all articles by Thomas Giebe

Thomas Giebe

Linnaeus University - Department of Economics and Statistics

Date Written: February 20, 2014


We consider innovation contests for the procurement of an innovation under moral hazard and adverse selection. Innovators have private information about their abilities, and choose unobservable effort in order to produce innovations of random quality. Innovation quality is not contractible. We compare two procurement mechanisms -- a fixed prize and a first-price auction. Before the contest, a fixed number of innovators is selected in an entry auction, in order to address the adverse selection problem. We find that -- if effort and ability are perfect substitutes -- both mechanisms implement the same innovations in symmetric pure-strategy equilibrium, regardless of whether the innovators' private information is revealed or not. These equilibria are efficient if the procurer is a welfare-maximizer.

Keywords: Procurement, Contest, Auction, Innovation, Research, Tournament

JEL Classification: D44, D61, D82, H57, O31, O32

Suggested Citation

Giebe, Thomas, Innovation Contests with Entry Auction (February 20, 2014). Available at SSRN: or

Thomas Giebe (Contact Author)

Linnaeus University - Department of Economics and Statistics ( email )

Växjö, 351 06

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