Prizes versus Contracts as Incentives for Innovation

Yeon-Koo Che, Elisabetta Iossa and Patrick Rey

No 16-695, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Procuring an innovation involves motivating a research effort to generate a new idea and then implementing that idea efficiently. If research efforts are unveriable 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 favoring 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.

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)
Date: 2016-09, Revised 2020-11
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 (1)

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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 (2017)
Working Paper: Prizes versus Contracts as Incentives for Innovation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:30793

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