Type
Working paper
Titre
Promising the right prize
Dans
Discussion Paper Series
Éditeur
Centre for Economic Policy Research
Collection
Discussion Paper Series : 7758
Mots clés
innovation race, market commitment mechanism, mechanism design, prizes and sorting
Résumé
EN
Prizes are often awarded to encourage research on products deemed of vital importance. We present a mechanism which can, in situations where the innovators are better informed about the difficulty of the research, tailor perfectly the expected reward to the expected research costs. The idea is to let the first successful inventor trade off the risk of having a competitor share the reward in exchange for a higher prize. If the goal of the designer is to minimize the prize awarded whilst encouraging innovators to conduct research, such a mechanism achieves the first best.

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