Prizes versus Contracts as Incentives for Innovation

Yeon-Koo Che, Elisabetta Iossa and Patrick Rey

No 358, CEIS Research Paper from Tor Vergata University, CEIS

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.

Keywords: Contract rights; Inducement Prizes; Innovation; Procurement and R&D. (search for similar items in EconPapers)
JEL-codes: D44 D82 H57 O31 O38 O39 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2015-10-22, Revised 2015-10-22
New Economics Papers: this item is included in nep-com, nep-cta, nep-hrm, nep-ino, nep-mic and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Prizes versus Contracts as Incentives for Innovation (2021)
Working Paper: Prizes versus Contracts as Incentives for Innovation (2021)
Working Paper: Prizes versus Contracts as Incentives for Innovation (2020)
Working Paper: Prizes versus Contracts as Incentives for Innovation (2017)
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