We propose a theory of firm production that requires diverse inputs. We show that in a competitive labor market, firms …

approach of the supplier, but the best approach is unknown. Diversity of approaches is desirable because it generates an option … a low bid and a high bid. This allows the buyer to implement any level of diversity with the lowest revenue for the …, auctions implement the socially optimal diversity, but usually with higher rents for the suppliers. Fixed-prize tournaments …

approach of the supplier, but the best approach is unknown. Diversity of approaches is beneficial because of the resulting … option value. An auction induces the social optimum, while a fixed-prize tournament induces insufficient diversity. The … prizes. This allows the buyer to implement any level of diversity at the lowest cost. …