Prizes and patents: using market signals to provide incentives for innovations
AbstractInnovative activities have public good characteristics in the sense that the cost of producing the innovation is high compared to the cost of producing subsequent units. Moreover, knowledge of how to produce subsequent units is widely known once the innovation has occurred and is, therefore, non-rivalrous. The main question of this paper is whether mechanisms can be found which exploit market information to provide appropriate incentives for innovation. The ability of the mechanism designer to exploit such information depends crucially on the ability of the innovator to manipulate market signals. We show that if the innovator cannot manipulate market signals, then the efficient levels of innovation can be implemented without deadweight losses - for example, by using appropriately designed prizes. If the innovator can use bribes, buybacks, or other ways of manipulating market signals, patents are necessary.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 673.
Date of creation: 2009
Date of revision:
Other versions of this item:
- 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.
- V. V. Chari & Mikhail Golosov & Aleh Tsyvinski, 2009. "Prizes and Patents: Using Market Signals to Provide Incentives for Innovations," Levine's Working Paper Archive 814577000000000398, David K. Levine.
- D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-03 (All new papers)
- NEP-CTA-2009-10-03 (Contract Theory & Applications)
- NEP-INO-2009-10-03 (Innovation)
- NEP-IPR-2009-10-03 (Intellectual Property Rights)
- NEP-TID-2009-10-03 (Technology & Industrial Dynamics)
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