%0 Report
%9 Working Paper
%A Che, Yeon-Koo
%A Iossa, Elisabetta
%A Rey, Patrick
%B TSE Working Paper
%C Toulouse.
%D 2016
%F publications:22358
%I Université Toulouse Capitole
%K Contract rights
%K Inducement Prizes
%K Innovation
%K Procurement and R&D
%T Prizes versus contracts as incentives for innovation
%U https://publications.ut-capitole.fr/id/eprint/22358/
%V 16-695
%X Procuring an innovation involves motivating a research effort to generate a new idea and then implementing that idea efficiently. If research efforts are unveriable and implementation costs are private information, a trade-off arises between the two objectives. The optimal mechanism resolves the trade-off via two instruments: a cash prize and a follow-on contract. It primarily uses the latter, by favoring the innovator at the implementation stage when the value of the innovation is above a certain threshold and handicapping the innovator when the value of the innovation is below that threshold. A cash prize is employed as a supplementary incentive only when the value of innovation is sufficiently high. These features are consistent with current practices in the procurement of innovation and the management of unsolicited proposals.