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Inducement Prizes and Innovation

Authors


  • We thank Harvard Business School's Division of Research for financial support and Philip Sheppy from the RASE archives for assistance with the data. Helpful comments were provided by Nick Bloom, Zorina Khan, Michael Kremer, Naomi Lamoreaux, Steven Shavell and Tom Vander Ark as well as numerous seminar participants. We are also extremely grateful to the Editor and the referees for their comments and suggestions.

Abstract

We examine the effect of prizes on innovation using data on awards for technological development offered by the Royal Agricultural Society of England at annual competitions between 1839 and 1939. We find large effects of the prizes on competitive entry and we also detect an impact on patents, especially when prize categories were set by a strict rotation scheme, thereby mitigating the potentially confounding effect that they targeted only ‘hot’ technology sectors. Prizes encouraged competition and medals were more important than monetary awards. The boost to innovation we observe cannot be explained by the re-direction of existing inventive activity.

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