A theory of grand innovation prizes

摘要

Highlights•Theoretical analysis of grand innovation prizes (GIP) to inform policy makers.•Cash prizes with technologies in the public domain are preferable when solution is easy to describe.•More difficult to describe situations call for a GIP with cash and patent rights jointly awarded.•Identifies key policy-relevant parameters required to assess the effectiveness of GIPs.•Reconciles practice and policy prescriptions of economics of innovation theoryAbstractThe past decade has witnessed a resurgence in innovation awards, in particular of grand innovation prizes (GIPs) which are rewards to innovators developing technologies reaching performance goals and requiring breakthrough solutions. GIPs typically do not preclude the winner also obtaining patent rights. This is in stark contrast with mainstream economics of innovation theories where prizes and patents are substitute ways to generate revenue and encourage innovation. Building on the management of innovation literature which stresses the difficulty to specify ex-ante all the technical features of the winning technologies, we develop a model in which innovative effort is multi-dimensional and only a subset of innovation tasks can be measured and contracted upon. We show that in this environment patent rights and cash rewards are complements, and that GIPs are often preferable to patent races or prizes requiring technologies to be placed in the public domain. Moreover, our model uncovers a tendency for patent races to encourage speed of discovery over quality of innovation, which can be corrected by GIPs. We explore robustness to endogenous entry, costly public funds, and incomplete information by GIP organizers on the surplus created by the technology.