Econ 483_Lecture 6_Prizes_Contests

Lecture 6 prizes contests econ483 econ of innovation

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Unformatted text preview: prize is less than cost) against the social cost of overrewarding the innovator. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Targeted prizes Advantages: Avoids deadweight loss Everyone is free to use the knowledge and apply it towards new innovations Achieves goals Encourages basic research Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Targeted prizes Disadvantages: Less likely to fund innovations with concentrated bene…ts Greater administrative costs Duplicate costs It is hard to allocate costs to the users of the good. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Blue-sky prizes Advantages: Avoids deadweight loss Everyone is free to use the knowledge and apply it towards new innovations Innovation is de-centralized & driven by the individual. Innovation with dispersed bene…ts Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Blue-sky prizes Disadvantages: Need to measure or observe the value of the innovation. Less likely to fund innovations with concentrated bene…ts Need of an alternative buyer (or patent) if the prize is too small Duplicate costs It is hard to allocate costs to the users of the good. Poor allocation; the most e¤ective inventor & the best idea do not always win out. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Ideas & innovations Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Choosing among ideas Suppose: 2 …rms have substitute ideas for how to serve the sponsor’ need. s An idea i is described by a pair (vi , ci ), i = 1, 2. vi : the per-period consumers’surplus with competitive supply ci : the cost of developing the idea into an innovation Lecture...
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This note was uploaded on 03/16/2014 for the course ECON 483 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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