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Inducing variety: a theory of innovation contests - Zurich Open Repository and Archive


Letina, Igor; Schmutzler, Armin (2017). Inducing variety: a theory of innovation contests. Working paper series / Department of Economics 200, University of Zurich.

Abstract

This paper analyzes the design of innovation contests when the quality of an innovation depends on the research approach, but the best approach is unknown. Inducing a variety of research approaches is desirable because it generates an option value. We show that suitable contests can induce such variety. The optimal contest is a bonus tournament, where suppliers can choose only between a low bid and a high bid. We then compare the optimal contest to other commonly studied institutions, such as scoring auctions and fixed-prize tournaments.

Abstract

This paper analyzes the design of innovation contests when the quality of an innovation depends on the research approach, but the best approach is unknown. Inducing a variety of research approaches is desirable because it generates an option value. We show that suitable contests can induce such variety. The optimal contest is a bonus tournament, where suppliers can choose only between a low bid and a high bid. We then compare the optimal contest to other commonly studied institutions, such as scoring auctions and fixed-prize tournaments.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:L14, L22, L23
Uncontrolled Keywords:Contests, tournaments, auctions, diversity, innovation, procurement
Language:English
Date:June 2017
Deposited On:22 Jul 2015 13:22
Last Modified:14 Jun 2017 10:18
Series Name:Working paper series / Department of Economics
Number of Pages:43
ISSN:1664-7041
Additional Information:Revised version ; former titles: "Designing institutions for diversity" (July 2015), and "Designing Innovation Contests for Diversity" (Dec. 2015)
Official URL:http://www.econ.uzh.ch/static/wp/econwp200.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php

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