Prizes versus Contracts as Incentives for Innovation

Elisabetta Iossa, Yeon-Koo Che and Patrick Rey

No 11904, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Procuring an innovation involves motivating a research effort to generate a new idea and then implementing that idea effciently. If research efforts are unverifiable and implementation costs are private information, a trade-ooff 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 suffciently 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)
Date: 2017-03
New Economics Papers: this item is included in nep-com, nep-cta, nep-hrm, nep-ino, nep-mic, nep-ppm and nep-reg
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Citations: View citations in EconPapers (7)

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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 (2015)
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