DP6917 Inducement Prizes and Innovation

Author(s): Liam Brunt, Josh Lerner, Tom Nicholas
Publication Date: July 2008
Keyword(s): awards, contests, patents
JEL(s): N40, O30, O31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6917

We examine prizes as an inducement for innovation using a novel dataset of awards for inventiveness offered by the Royal Agricultural Society of England from 1839 to 1939. At annual shows the RASE held competitive trials and awarded medals and monetary prizes (exceeding one million pounds in current prices) to spur technological development. We find large effects of the prizes on contest entries, especially for the Society?s gold medal. Matching award and patent data, we also detect large effects of the prizes on the quality of contemporaneous inventions. These results hold even during the period when prize categories were determined by a strict rotation scheme, thus overcoming the potential confounding effect that awards may have targeted "hot" technology sectors. Our evidence suggests that prize awards can be a powerful mechanism for encouraging competition and that prestigious non-pecuniary prizes can be a particularly effective inducement for innovation.