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Optimal Design of Research Contests

  • Yeon-Koo Che
  • Ian Gale

Procurement of an innovation often requires substantial effort by potential suppliers. Motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable, if innovators cannot benefit directly by marketing their innovations, and if the buyer cannot extract up-front payments from suppliers. We study the use of contests to procure an innovation in such an environment. An auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests. If contestants are asymmetric, it is optimal to handicap the most efficient one.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 3 (June)
Pages: 646-671

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:646-671
Note: DOI: 10.1257/000282803322157025
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  1. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-Up Problem?," CESifo Working Paper Series 317, CESifo Group Munich.
  3. Che, Y.K., 1991. "Design Competition through Multidimensional Auctions," Working papers 9123, Wisconsin Madison - Social Systems.
  4. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  5. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-41, October.
  6. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  7. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . ""Efficient Non-Contractible Investments''," CARESS Working Papres 98-13, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  8. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
  9. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
  10. Bag, Parimal Kanti, 1997. "Optimal auction design and R&D," European Economic Review, Elsevier, vol. 41(9), pages 1655-1674, December.
  11. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
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