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Innovation contests with entry auction

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  • Giebe, Thomas

Abstract

We consider innovation contests for the procurement of an innovation under moral hazard and adverse selection. Innovators have private information about their abilities, and choose unobservable effort in order to produce innovations of random quality. Innovation quality is not contractible. We compare two procurement mechanisms—a fixed prize and a first-price auction. Before the contest, a fixed number of innovators is selected in an entry auction, in order to address the adverse selection problem. We find that–if effort and ability are perfect substitutes–both mechanisms implement the same innovations in symmetric pure-strategy equilibrium, regardless of whether the innovators’ private information is revealed or not. These equilibria are efficient if the procurer is a welfare-maximizer.

Suggested Citation

  • Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
  • Handle: RePEc:eee:mateco:v:55:y:2014:i:c:p:165-176
    DOI: 10.1016/j.jmateco.2014.02.004
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    Cited by:

    1. repec:eee:indorg:v:52:y:2017:i:c:p:393-426 is not listed on IDEAS
    2. Brennan, Timothy J. & Macauley, Molly & Whitefoot, Kate, 2011. "Prizes, Patents, and Technology Procurement: A Proposed Analytical Framework," Discussion Papers dp-11-21-rev, Resources For the Future.

    More about this item

    Keywords

    Procurement; Contest; Auction; Innovation; Research; Tournament;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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