(with Riccardo Camboni, Elisabetta Iossa, and PaolaValbonesi)

Abstract. Procuring an innovation involves motivatingresearch effort to design an innovative project and then implementing thatproject efficiently. We adapt the theoretical setting in Che, Iossa and Rey(2017) and investigate experimentally the impact of awarding a bid preferenceto the innovator in the tender for the implementation of the innovativeproject. Our results confirm the theoretical predictions that a bid preferenceto the innovator increases research incentives, buyer surplus and welfare. However,contrary to the theory, we find that bid preferences do not increase the finalprice payed by buyers. We rationalize this finding as due to a sunk cost bias.