BEER Lab Meeting - Martina Katja Bossard

Innovation tournaments – a vital source of R&D in recent years – differ markedly in their information structure. We study theoretically and experimentally the effect of varying the degree to which contestants are informed about their rivals’ performance in a dynamic innovation tournament. Our main result shows that the information policy that maximizes incentives to innovate depends crucially on the size of the tournament’s prize relative to the costs of generating new ideas. Notably, incentives can be maximal when information is neither perfect nor nil, i.e., when contestants obtain only rank information. An important policy implication of our results is that fine-tuning the institutional details of an innovation tournament can be critical and should be performed against the background of any policy affecting the total value of an innovation, such as competition or patent policy.