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 language | English (US) |
|---|---|
| Pages (from-to) | 781-801 |
| Number of pages | 21 |
| Journal | Journal of Economic Theory |
| Volume | 147 |
| Issue number | 2 |
| DOIs | |
| State | Published - Mar 2012 |
Bibliographical note
Funding Information:✩ We are grateful to the Associate Editor and three anonymous referees for the suggestions. The authors thank the National Science Foundation for support. Golosov and Tsyvinski thank Einaudi Institute for Economics and Finance for hospitality. We thank Daron Acemoglu, Larry Jones, Matt Mitchell, and Nicolas Werquin for comments. * Corresponding author. Fax: +1 (203) 436 2626. E-mail addresses: chari@econ.umn.edu (V.V. Chari), m.golosov@yale.edu (M. Golosov), a.tsyvinski@yale.edu (A. Tsyvinski).
Keywords
- Economic growth
- Innovations
- Mechanism design
- Patents
- Prizes
