Prizes and patents: Using market signals to provide incentives for innovations

V. V. Chari, Mikhail Golosov, Aleh Tsyvinski

Research output: Contribution to journalArticle

14 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)781-801
Number of pages21
JournalJournal of Economic Theory
Volume147
Issue number2
DOIs
StatePublished - Mar 1 2012

Keywords

  • Economic growth
  • Innovations
  • Mechanism design
  • Patents
  • Prizes

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