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Prizes and Patents: Using Market Signals to Provide Incentives for Innovations

Listed author(s):
  • V. V. Chari
  • Mikhail Golosov
  • Aleh Tsyvinski

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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000398.

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Date of creation: 01 Dec 2009
Handle: RePEc:cla:levarc:814577000000000398
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