Abstract

https://ssrn.com/abstract=2677626
 


 



Prizes Versus Contracts as Incentives for Innovation


Yeon-Koo Che


Columbia University

Elisabetta Iossa


University of Rome Tor Vergata; University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Rey Patrick


Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

September 25, 2015

CEIS Working Paper No. 358

Abstract:     
The procurement of an innovation involves motivating a research effort to generate a new idea and then implementing that idea efficiently. If research efforts are unverifiable and implementation costs are private information, a trade-off arises between the two objectives. The optimal mechanism resolves the tradeoff via two instruments: a monetary prize and a contract to implement the project. The optimal mechanism favors the innovator in contract allocation when the value of innovation is above a certain threshold, and handicaps the innovator in contract allocation when the value of innovation is below that threshold. A monetary prize is employed as an additional incentive but only when the value of innovation is sufficiently high.

Number of Pages in PDF File: 55

Keywords: Contract rights, Inducement Prizes, Innovation, Procurement and R&D

JEL Classification: D44, H57, D82, O31, O38, O39


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Date posted: October 22, 2015 ; Last revised: October 24, 2015

Suggested Citation

Che , Yeon-Koo and Iossa, Elisabetta and Patrick, Rey, Prizes Versus Contracts as Incentives for Innovation (September 25, 2015). CEIS Working Paper No. 358. Available at SSRN: https://ssrn.com/abstract=2677626 or http://dx.doi.org/10.2139/ssrn.2677626

Contact Information

Yeon-Koo Che
Columbia University ( email )
420 W. 118th Street, 1016IAB
New York, NY 10027
United States
212-854-8276 (Phone)
HOME PAGE: http://www.columbia.edu/~yc2271
Elisabetta Iossa (Contact Author)
University of Rome Tor Vergata ( email )
Via Columbia n.2
Rome, 00133
Italy
University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )
12 Priory Road
Bristol BS8 1TN
United Kingdom
Patrick Rey
Toulouse School of Economics ( email )
2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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