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Bhattacharya, Vivek

An empirical model of R&D procurement contests: an analysis of the DOD SBIR program. (English) Zbl 1514.91073

Econometrica 89, No. 5, 2189-2224 (2021).
Summary: Firms and governments often use R&D contests to incentivize suppliers to develop and deliver innovative products. The optimal design of such contests depends on empirical primitives: the cost of research, the uncertainty in outcomes, and the surplus participants capture. Can R&D contests in real-world settings be redesigned to increase social surplus? I ask this question in the context of the Department of Defense’s Small Business Innovation Research program, a multistage R&D contest. I develop a structural model to estimate the primitives from data on R&D and procurement contracts. I find that the optimal design substantially increases social surplus, and simple design changes in isolation (e.g., inviting more contestants) can capture up to half these gains; however, these changes reduce the DOD’s own welfare. These results suggest there is substantial scope for improving the design of real-world contests but that a designer must balance competing objectives.

Cited in 1 Document

MSC:

91B38 Production theory, theory of the firm

Keywords:

R&D procurement; contests; Small Business Innovation Research program; holdup problem; intellectual property

Software:

MALLET
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References:

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