Scarcity of Ideas and Optimal Prizes in Innovation Contests

75 Pages Posted: 11 Oct 2021

See all articles by Nisvan Erkal

Nisvan Erkal

University of Melbourne - Faculty of Business and Economics

Jun Xiao

University of Melbourne - Faculty of Business and Economics

Date Written: August 16, 2021

Abstract

This paper studies the relationship between optimal prizes and scarcity of ideas in innovation contests. We consider a model where both ideas and effort are integral parts of the innovation process. Contest participants are privately informed about their idea quality. We introduce a new stochastic order to rank scarcity of ideas and study how a contest designer's choice--maximizing prize--should vary with scarcity of ideas. We fi nd that scarcity of ideas results in higher optimal prizes if and only if the bene t from a marginal improvement in the new technology's performance is sufficiently low.

Keywords: innovation, idea distribution, contests, comparative statics, stochastic dominance

JEL Classification: D44, D82, O31

Suggested Citation

Erkal, Nisvan and Xiao, Jun, Scarcity of Ideas and Optimal Prizes in Innovation Contests (August 16, 2021). Available at SSRN: https://ssrn.com/abstract=3921948 or http://dx.doi.org/10.2139/ssrn.3921948

Nisvan Erkal

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia
+61 3 8344 3307 (Phone)
+61 3 8344 6899 (Fax)

HOME PAGE: http://www.nisvanerkal.net

Jun Xiao (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

HOME PAGE: http://www.junxiao1.com

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