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Prizes and patents: Using market signals to provide incentives for innovations

  • Chari, V.V.
  • Golosov, Mikhail
  • Tsyvinski, Aleh

We consider environments in which agents other than innovator receive the signals about the quality of innovation. We study whether mechanisms can be found which exploit market information to provide appropriate incentives for innovation. If such mechanisms are used, the innovator has incentives to manipulate market signals. We show that if an innovator cannot manipulate market signals, then the efficient levels of innovation can be uniquely implemented without deadweight losses – for example, by using prizes. Patents are necessary if the innovator can manipulate market signals. For an intermediate case of costly signal manipulation, both patents and prizes may be optimal.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 147 (2012)
Issue (Month): 2 ()
Pages: 781-801

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Handle: RePEc:eee:jetheo:v:147:y:2012:i:2:p:781-801
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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