THE DESIGN OF IDEA MARKETS: AN ECONOMIST’S PERSPECTIVE

Abstract

GE is pioneering the development of market-based methods for allocating research budget to internal projects. To be effective, a market for ideas must provide appropriate incentives for the creation of valuable ideas and it must result in sufficiently accurate evaluation of ideas. The main tenet behind GE’s Idea Market is that improvements in the evaluation of research ideas should foster incentives for idea creation. Indeed, idea creation and idea evaluation are complementary activities. For an idea to be successful, it is not enough that the idea be good. It also helps if the idea is recognized as good by those who evaluate it. As the evaluation process becomes more accurate, good ideas are more likely to be funded. Thus, incentives for the creation of ideas are enhanced when ideas are evaluated more accurately.