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Prizes and lemons: procurement of innovation under imperfect commitment

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  • Wei Ding
  • Elmar G. Wolfstetter

Abstract

The literature on R&D contests implicitly assumes that contestants submit their innovation regardless of its value. This ignores a potential adverse selection problem. The present paper analyzes the procurement of innovations when the procurer cannot commit to never bargain with innovators who bypass the contest. We compare ?xed-prize tournaments with and without entry fees, and optimal scoring auctions with and without minimum score requirement. Our main result is that the optimal ?xed-prize tournament is more pro?table than the optimal auction since preventing bypass is more costly in the optimal auction.

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File URL: http://hdl.handle.net/10.1111/j.1756-2171.2011.00149.x
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Bibliographic Info

Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 42 (2011)
Issue (Month): 4 (December)
Pages: 664-680

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Handle: RePEc:bla:randje:v:42:y:2011:i:4:p:664-680

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Cited by:
  1. Giebe, Thomas, 2010. "Innovation Contests with Entry Auction," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 307, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Midjord, Rune, 2012. "Competitive Pressure and Job Interview Lying: A Game Theoretical Analysis," DFAEII Working Papers 2012-14, University of the Basque Country - Department of Foundations of Economic Analysis II.
  3. Słomczyński, Wojciech & Życzkowski, Karol, 2012. "Mathematical aspects of degressive proportionality," Mathematical Social Sciences, Elsevier, Elsevier, vol. 63(2), pages 94-101.
  4. Skrzypacz, Andrzej, 2013. "Auctions with contingent payments — An overview," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 31(5), pages 666-675.

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