Abstract: "Picking Winners in Rounds of Elimination"
A defect of intellectual property as an incentive mechanism is that researchers must pay the costs of research long before receiving a reward. Self-finance is often not an option. For potential funders such as venture capitalists and public sponsors, the problem is to find the most promising researchers or projects, and to do so before the research is complete or the commercial prospects certain. Funding involves rounds of elimination, which serve as a screening mechanism. In this paper I study elimination mechanisms with and without memory, and show how the structure of elimination rounds involves a tradeoff between screening and costs. Public sponsors and venture capitalists may deviate in different ways from what is optimal.