The Optimal Timing of Procurement Decisions and Patent Allocations

In a patent race, social incentives and private incentives may sometimes coincide and at other times diverge - too many researchers remain in the race. If the social planner cannot determine what stage the researchers have achieved, this informational constraint can result in a socially suboptimal outcome. We construct a mechanism in which a planner exploits the researchers' private information to determine when and to whom to allocate rights to pursue the final prize. This mechanism does not require any payments and, therefore, will not distort earlier investment incentives. It is solvable by the iterative elimination of dominated strategies. Copyright 2002 by the Economics Department of the University of Pennsylvania and Osaka University Institute of Social and Economic Research Association