Prizes versus Contracts as Incentives for Innovation

• Yeon-Koo Che ^[1] ; Elisabetta Iossa ^[3] ; Patrick Rey ^[2]
  1. [1] Columbia University

     Columbia University

     Estados Unidos

     
  2. [2] Université de Toulouse

     Université de Toulouse

     Arrondissement de Toulouse, Francia

     
  3. [3] University of Rome Tor Vergata and GREEN-Bocconi

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• Localización: Review of economic studies, ISSN 0034-6527, Vol. 88, Nº 5, 2021, págs. 2149-2178
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • Procuring 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 trade-off via two instruments: a cash prize and a follow-on contract. It primarily uses the latter, by favouring the innovator at the implementation stage when the value of the innovation is above a certain threshold and handicapping the innovator when the value of the innovation is below that threshold. A cash prize is employed as a supplementary incentive only when the value of innovation is sufficiently high. These features are consistent with current practices in the procurement of innovation and the management of unsolicited proposals.