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Incentivizing Innovation: Adding to the Tool Kit

In: Innovation Policy and the Economy, Volume 10

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  • Michael Kremer
  • Heidi Williams

Abstract

Intellectual property rights (IPR) create incentives for research but impose static efficiency losses and other costs. In this essay, we discuss recent proposals of other mechanisms for rewarding innovation and argue that incremental experimentation with mechanisms that supplement rather than replace IPR can help to test and refine these mechanisms without undermining existing institutions. Prizes, such as those recently offered by the X-Prize Foundation, have been successful in spurring research but have typically targeted demonstration projects rather than innovations capable of being used at scale. To spur the creation of products for widespread use, the design of prizes could be usefully extended by conditioning rewards on a market test, as in the recent $1.5 billion pilot Advance Market Commitment (AMC) for a pneumococcus vaccine.
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Suggested Citation

  • Michael Kremer & Heidi Williams, 2010. "Incentivizing Innovation: Adding to the Tool Kit," NBER Chapters, in: Innovation Policy and the Economy, Volume 10, pages 1-17, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:11763
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    References listed on IDEAS

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    1. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
    2. Chari, V.V. & Golosov, Mikhail & Tsyvinski, Aleh, 2012. "Prizes and patents: Using market signals to provide incentives for innovations," Journal of Economic Theory, Elsevier, vol. 147(2), pages 781-801.
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