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Prizes and Lemons: Procurement of Innovation under Imperfect Commitment

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  • Ding, Wei
  • Wolfstetter, Elmar G.

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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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 262.

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Date of creation: Jun 2009
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Handle: RePEc:trf:wpaper:262

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Keywords: innovation; contests; tournaments; auctions; bargaining; adverse;

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Cited by:
  1. Skrzypacz, Andrzej, 2013. "Auctions with contingent payments — An overview," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 31(5), pages 666-675.
  2. Słomczyński, Wojciech & Życzkowski, Karol, 2012. "Mathematical aspects of degressive proportionality," Mathematical Social Sciences, Elsevier, Elsevier, vol. 63(2), pages 94-101.
  3. 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.
  4. 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.

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