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Optimal Design of Research Contests

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  • Yeon-Koo Che
  • Ian Gale

Abstract

Procurement of an innovation often requires substantial effort by potential suppliers. Motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable, if innovators cannot benefit directly by marketing their innovations, and if the buyer cannot extract up-front payments from suppliers. We study the use of contests to procure an innovation in such an environment. An auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests. If contestants are asymmetric, it is optimal to handicap the most efficient one.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803322157025
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 3 (June)
Pages: 646-671

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:646-671

Note: DOI: 10.1257/000282803322157025
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  1. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
  2. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Che, Y.K., 1991. "Design Competition through Multidimensional Auctions," Working papers 9123, Wisconsin Madison - Social Systems.
  4. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-Up Problem?," CESifo Working Paper Series 317, CESifo Group Munich.
  5. Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
  6. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
  7. Bag, Parimal Kanti, 1997. "Optimal auction design and R&D," European Economic Review, Elsevier, vol. 41(9), pages 1655-1674, December.
  8. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 2001. "Efficient Non-Contractible Investments in Large Economies," Journal of Economic Theory, Elsevier, vol. 101(2), pages 333-373, December.
  9. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1998. "Efficient non-contractible investments," Staff Report 253, Federal Reserve Bank of Minneapolis.
  10. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  11. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  12. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-41, October.
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