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Innovation Contests

Author

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  • David Pérez-Castrillo
  • David Wettstein

Abstract

We study innovation contests with asymmetric information and identical contestants, where contestants' efforts and innate abilities generate inventions of varying qualities. The designer offers a reward to the contestant achieving the highest quality and receives the revenue generated by the innovation. We characterize the equilibrium behavior, outcomes and payoffs for both nondiscriminatory and discriminatory (where the reward is contestant-dependent) contests. We derive conditions under which the designer obtains a larger payoff when using a discriminatory contest and describe settings where these conditions are satisfied.

Suggested Citation

  • David Pérez-Castrillo & David Wettstein, 2012. "Innovation Contests," Working Papers 654, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:654
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    References listed on IDEAS

    as
    1. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, pages 1111-1133.
    2. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
    3. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
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    5. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 291-305.
    6. Kaplan, T.R. & Luski, I. & Wettstein, D., 2000. "Innovative Activity and Sunk Cost," Discussion Papers 0006, Exeter University, Department of Economics.
    7. 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, pages 289-294.
    8. McConnell, Virginia & Walls, Margaret & Kopits, Elizabeth, 2006. "Zoning, TDRs and the density of development," Journal of Urban Economics, Elsevier, pages 440-457.
    9. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, pages 1111-1133.
    10. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
    11. Kirkegaard, René, 2012. "Favoritism in asymmetric contests: Head starts and handicaps," Games and Economic Behavior, Elsevier, vol. 76(1), pages 226-248.
    12. Ron Siegel, 2010. "Asymmetric Contests with Conditional Investments," American Economic Review, American Economic Association, pages 2230-2260.
    13. Konrad, Kai A., 2002. "Investment in the absence of property rights; the role of incumbency advantages," European Economic Review, Elsevier, pages 1521-1537.
    14. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
    15. Kirkegaard, René, 2013. "Handicaps in incomplete information all-pay auctions with a diverse set of bidders," European Economic Review, Elsevier, vol. 64(C), pages 98-110.
    16. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, pages 542-558.
    17. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, pages 872-890.
    18. Stefan Jönsson & Armin Schmutzler, 2013. "All-pay auctions: Implementation and optimality," ECON - Working Papers 108, Department of Economics - University of Zurich.
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    20. Nirvikar Singh & Donald Wittman, 2001. "Contests where there is variation in the marginal productivity of effort," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 711-744.
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    Citations

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    Cited by:

    1. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
    2. Seel, Christian & Wasser, Cédric, 2014. "On optimal head starts in all-pay auctions," Economics Letters, Elsevier, vol. 124(2), pages 211-214.
    3. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    4. Dahm, Matthias & Esteve, Patrícia,, 2013. "Affirmative Action through Extra Prizes," Working Papers 2072/222197, Universitat Rovira i Virgili, Department of Economics.
    5. Kawamura, Kohei & Moreno de Barreda, Inés, 2014. "Biasing selection contests with ex-ante identical agents," Economics Letters, Elsevier, vol. 123(2), pages 240-243.

    More about this item

    Keywords

    contests; Auctions; innovations; discrimination;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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