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Using Auctions To Reward Tournament Winners: Theory and Experimental Investigations

Author

Listed:
  • Richard L. Fullerton
  • Bruce G. Linster
  • Michael McKee
  • Stephen Slate

Abstract

This article explores theoretical and experimental implications of using auctions to reward winners of research tournaments. This process is a hybrid of the research tournament for a prize and a first-price auction held after the research is complete. The bids in the auction consist of a vector of both quality of the innovation and price. The experimental evidence supports the hypothesis that conducting auctions at the end of research tournaments will generally reduce the sponsor's prize expenditure relative to fixed-prize research tournaments. The potential importance of these results to the U.S. Department of Defense acquisition process is emphasized.

Suggested Citation

  • Richard L. Fullerton & Bruce G. Linster & Michael McKee & Stephen Slate, 2002. "Using Auctions To Reward Tournament Winners: Theory and Experimental Investigations," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 62-84, Spring.
    • Handle: RePEc:rje:randje:v:33:y:2002:i:spring:p:62-84
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    Citations

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    Cited by:

    1. Jean-Michel Benkert & Igor Letina, 2020. "Designing Dynamic Research Contests," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 270-289, November.
    2. Amihai Glazer, 2008. "Bargaining with Rent Seekers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(5), pages 859-871, October.
    3. Derek Clark & Christian Riis, 2007. "Contingent payments in selection contests," Review of Economic Design, Springer;Society for Economic Design, vol. 11(2), pages 125-137, September.
    4. Letina, Igor & Benkert, Jean-Michel, 2016. "Designing Dynamic Research Tournaments," VfS Annual Conference 2016 (Augsburg): Demographic Change 145738, Verein für Socialpolitik / German Economic Association.
    5. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    6. Anja Schöttner, 2008. "Fixed-prize tournaments versus first-price auctions in innovation contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(1), pages 57-71, April.
    7. Prüfer, J., 2009. "Semi-Public Contests," Other publications TiSEM 085b0a4f-db2c-46dd-b502-b, Tilburg University, School of Economics and Management.
    8. Jason Shachat & J. Todd Swarthout, 2010. "Procurement Auctions for Differentiated Goods," Decision Analysis, INFORMS, vol. 7(1), pages 6-22, March.
    9. Koh, Youngwoo, 2017. "Incentive and sampling effects in procurement auctions with endogenous number of bidders," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 393-426.
    10. repec:hum:wpaper:sfb649dp2005-041 is not listed on IDEAS
    11. repec:wyi:journl:002123 is not listed on IDEAS
    12. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    13. David Hendry, 2010. "Climate Change: Lessons for our Future from the Distant Past," Economics Series Working Papers 485, University of Oxford, Department of Economics.
    14. Schmutzler, Armin & Letina, Igor, 2015. "Designing Innovation Contests for Diversity," CEPR Discussion Papers 10736, C.E.P.R. Discussion Papers.
    15. Igor Letina & Armin Schmutzler, 2019. "Inducing Variety: A Theory Of Innovation Contests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(4), pages 1757-1780, November.
    16. Donja Darai & Jens Grosser & Nadja Trhal, 2009. "Patents versus Subsidies � A Laboratory Experiment," SOI - Working Papers 0905, Socioeconomic Institute - University of Zurich.
    17. Nicola Dimitri, 2012. "Some Law & Economics Considerations on the EU Pre-Commercial Procurement of Innovation," Working Papers 2012/10, Maastricht School of Management.
    18. Cabral, Luis & Spagnolo, Giancarlo & Cozzi, Guido & Zanza, Matteo & Denicolo, Vincenzo, 2006. "Procuring Innovation," CEPR Discussion Papers 5774, C.E.P.R. Discussion Papers.
    19. Fu, Qiang & Lu, Jingfeng & Lu, Yuanzhu, 2012. "Incentivizing R&D: Prize or subsidies?," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 67-79.
    20. Alexander Matros, 2006. "Elimination Tournaments where Players Have Fixed Resources," Working Paper 205, Department of Economics, University of Pittsburgh, revised Jan 2006.
    21. J. Todd Swarthout & Jason Shachat, 2004. "The performance of reverse auctions versus request for quotes when procuring goods with quality differences," Econometric Society 2004 North American Winter Meetings 255, Econometric Society.
    22. Rieck, Thomas, 2010. "Information Disclosure in Innovation Contests," Bonn Econ Discussion Papers 16/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
    23. Nicolas de Roos & Alexander Matros & Vladimir Smirnov, 2024. "Elimination tournaments with resource constraints," Working Papers 2024-06, University of Sydney, School of Economics.
    24. Dizdar, Deniz, 2021. "On the optimality of small research tournaments," Mathematical Social Sciences, Elsevier, vol. 110(C), pages 19-22.

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