Promising the right prize

Emeric Henry

No 7758, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Prizes are often awarded to encourage research on products deemed of vital importance. We present a mechanism which can, in situations where the innovators are better informed about the difficulty of the research, tailor perfectly the expected reward to the expected research costs. The idea is to let the first successful inventor trade off the risk of having a competitor share the reward in exchange for a higher prize. If the goal of the designer is to minimize the prize awarded whilst encouraging innovators to conduct research, such a mechanism achieves the first best.

Keywords: Innovation race; Market commitment mechanism; Prizes; Sorting; Mechanism design (search for similar items in EconPapers)
JEL-codes: D82 H57 O31 O38 (search for similar items in EconPapers)
Date: 2010-03
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Citations: View citations in EconPapers (3)

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Working Paper: Promising the right prize (2010)
Working Paper: Promising the right prize (2010)
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