Prizes and lemons: procurement of innovation under imperfect commitment
AbstractThe 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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Bibliographic InfoArticle provided by RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 42 (2011)
Issue (Month): 4 (December)
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Other versions of this item:
- Ding, Wei & Wolfstetter, Elmar G., 2009. "Prizes and Lemons: Procurement of Innovation under Imperfect Commitment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 262, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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- Słomczyński, Wojciech & Życzkowski, Karol, 2012. "Mathematical aspects of degressive proportionality," Mathematical Social Sciences, Elsevier, vol. 63(2), pages 94-101.
- 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.
- Giebe, Thomas, 2010. "Innovation Contests with Entry Auction," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 307, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Skrzypacz, Andrzej, 2013. "Auctions with contingent payments — An overview," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 666-675.
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