Incentive mechanism for innovations
IAPR Technical Paper Series
Incentive mechanisms for innovation
Aidan Hollis∗
Department of Economics
University of Calgary
June 2007
Technical Paper No. TP-07005
Institute for Advance Policy Research
University of Calgary
Calgary, Alberta
Canada
http://www.iapr.ca
∗
James Love got me started on this project and I have appreciated his encouragement and his criticisms. The paper has benefited from the comments of my colleagues at the
University of Calgary, particularly those of Curtis Eaton. Contact information – Email: ahollis@ucalgary.ca; Telephone: (403) 220 5861. © by author. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit is given to the source.
Hollis
Incentive Mechanisms for Innovation
Incentive mechanisms for innovation
Aidan Hollis
Department of Economics
University of Calgary ahollis@ucalgary.ca June 2007
Abstract
Using a simple model of innovation, I compare patents, research grants, targeted prizes, and ex post prizes and explore their interaction. I then introduce a new incentive mechanism for innovation, provisionally labeled optional broad rewards, or OBRs, and examine its characteristics. I explore the interaction of OBRs with the patent system and suggest some specific settings in which OBRs may be useful.
1
Hollis
Incentive Mechanisms for Innovation
1. Introduction
Innovation is at the core of economic growth, and so designing incentives which will enable greater innovation should be at the core of government policy. Unfortunately, the mechanisms commonly used – patents, research grants, and prizes – are incomplete and imperfect, much like other social institutions. In particular, when patents do not enable the innovator to appropriate a significant share of the benefits of his or her invention, they cannot be an effective incentive mechanism. I introduce a new incentive mechanism for
Incentive mechanisms for innovation
Aidan Hollis∗
Department of Economics
University of Calgary
June 2007
Technical Paper No. TP-07005
Institute for Advance Policy Research
University of Calgary
Calgary, Alberta
Canada
http://www.iapr.ca
∗
James Love got me started on this project and I have appreciated his encouragement and his criticisms. The paper has benefited from the comments of my colleagues at the
University of Calgary, particularly those of Curtis Eaton. Contact information – Email: ahollis@ucalgary.ca; Telephone: (403) 220 5861. © by author. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit is given to the source.
Hollis
Incentive Mechanisms for Innovation
Incentive mechanisms for innovation
Aidan Hollis
Department of Economics
University of Calgary ahollis@ucalgary.ca June 2007
Abstract
Using a simple model of innovation, I compare patents, research grants, targeted prizes, and ex post prizes and explore their interaction. I then introduce a new incentive mechanism for innovation, provisionally labeled optional broad rewards, or OBRs, and examine its characteristics. I explore the interaction of OBRs with the patent system and suggest some specific settings in which OBRs may be useful.
1
Hollis
Incentive Mechanisms for Innovation
1. Introduction
Innovation is at the core of economic growth, and so designing incentives which will enable greater innovation should be at the core of government policy. Unfortunately, the mechanisms commonly used – patents, research grants, and prizes – are incomplete and imperfect, much like other social institutions. In particular, when patents do not enable the innovator to appropriate a significant share of the benefits of his or her invention, they cannot be an effective incentive mechanism. I introduce a new incentive mechanism for
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