Econ 483_Lecture 6_Prizes_Contests

Are posted ex ante reward solutions to sponsor needs

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: eeds known to sponsors. are posted ex-ante. reward solutions to sponsor’ needs which are formalized in performance s standards that must be met. Example: Prize of $30 million to develop a new "super e¢ cient refrigerator", 1992 ! Whirlpool won the contest but did not meet the performance standard (to sell 250,000 copies by 1997); the prize was not paid. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Prizes - What happens if a scientist thinks of a great idea for which no reward has been posted? Blue-sky prizes ("The sky is the limit"): are o¤ered for innovations that are not identi…ed in advance. are tailored ex-post to the value of the innovation. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Prizes The advantage of prizes over patents: ! they can avoid the deadweight loss (DWL) of monopoly pricing. The prize can be set equal to the patent value. The prize gives the same incentives to invest in the idea as the IP system & with less DWL, if (say) the innovation goes into the public domain. The prize system will work if the value of the innovation is observable & veri…able (by a court), so that the prize give can be sued for any attempt to cheat. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Prizes Though, a sponsor may base the prize directly on the cost of innovation (if observable) instead of its value. some research e¤orts do not pay o¤ with certainty - A prize much larger than the cost may attract too many competitors. - A prize much smaller than the cost may discourage some innovations. Lecture 6: Prizes & contests, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. P rizes Contests Ebay Prizes A prize re‡ects the value of the innovat...
View Full Document

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.

Ask a homework question - tutors are online