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Promising the right prize

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  • Henry, Emeric

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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7758.

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Date of creation: Mar 2010
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Handle: RePEc:cpr:ceprdp:7758

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Keywords: innovation race; market commitment mechanism; mechanism design; prizes; sorting;

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References

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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. Vincenzo Denicolo & Luigi A. Franzoni, 2010. "On the Winner-Take-All Principle in Innovation Races," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1133-1158, 09.
  3. Michele Boldrin & David K Levine, 2008. "Against Intellectual Monopoly," Levine's Bibliography 122247000000002371, UCLA Department of Economics.
  4. Kultti, Klaus & Takalo, Tuomas, 2008. "Optimal fragmentation of intellectual property rights," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 137-149, January.
  5. Gandal, N. & Scotchmen, S., 1991. "Coordinating Research Through Research Joint Ventures," Papers 6-91, Tel Aviv.
  6. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Michael Kremer, 1998. "Patent Buyouts: A Mechanism For Encouraging Innovation," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1137-1167, November.
  8. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  9. Nancy Gallini & Suzanne Scotchmer, 2003. "Intellectual Property: When is it the Best Incentive System?," Levine's Working Paper Archive 618897000000000532, David K. Levine.
  10. Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
  11. repec:ner:sciepo:info:hdl:2441/c8dmi8nm4pdjkuc9g8gk4io12 is not listed on IDEAS
  12. Ernst R. Berndt & Rachel Glennerster & Michael R. Kremer & Jean Lee & Ruth Levine & Georg Weizsäcker & Heidi Williams, 2007. "Advance market commitments for vaccines against neglected diseases: estimating costs and effectiveness," Health Economics, John Wiley & Sons, Ltd., vol. 16(5), pages 491-511.
  13. Emeric Henry, 2010. "Runner-up patents: is monopoly inevitable?," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  14. Hopenhayn, Hugo A & Mitchell, Matthew F, 2001. "Innovation Variety and Patent Breadth," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 152-66, Spring.
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Cited by:
  1. Mitchell, Matthew & Zhang, Yuzhe, 2012. "Shared Rights and Technological Progress," MPRA Paper 36537, University Library of Munich, Germany.

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