[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v57y2011i5p843-863.html
   My bibliography  Save this article

Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis

Author

Listed:
  • Kevin J. Boudreau

    (London Business School, London NW1 4SA, United Kingdom)

  • Nicola Lacetera

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 2E9, Canada)

  • Karim R. Lakhani

    (Harvard Business School, Boston, Massachusetts 02163)

Abstract
Contests are a historically important and increasingly popular mechanism for encouraging innovation. A central concern in designing innovation contests is how many competitors to admit. Using a unique data set of 9,661 software contests, we provide evidence of two coexisting and opposing forces that operate when the number of competitors increases. Greater rivalry reduces the incentives of all competitors in a contest to exert effort and make investments. At the same time, adding competitors increases the likelihood that at least one competitor will find an extreme-value solution. We show that the effort-reducing effect of greater rivalry dominates for less uncertain problems, whereas the effect on the extreme value prevails for more uncertain problems. Adding competitors thus systematically increases overall contest performance for high-uncertainty problems. We also find that higher uncertainty reduces the negative effect of added competitors on incentives. Thus, uncertainty and the nature of the problem should be explicitly considered in the design of innovation tournaments. We explore the implications of our findings for the theory and practice of innovation contests. This paper was accepted by Christian Terwiesch, operations management.

Suggested Citation

  • Kevin J. Boudreau & Nicola Lacetera & Karim R. Lakhani, 2011. "Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis," Management Science, INFORMS, vol. 57(5), pages 843-863, May.
    • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:5:p:843-863
    DOI: 10.1287/mnsc.1110.1322
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1110.1322
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1110.1322?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Benny Moldovanu & Aner Sela, 2008. "The Optimal Allocation of Prizes in Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 615-631, Springer.
    3. Christoph H. Loch & Christian Terwiesch & Stefan Thomke, 2001. "Parallel and Sequential Testing of Design Alternatives," Management Science, INFORMS, vol. 47(5), pages 663-678, May.
    4. Christian Riis, 2010. "Efficient Contests," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 643-665, September.
    5. Benny Moldovanu & Aner Sela & Xianwen Shi, 2007. "Contests for Status," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 338-363.
    6. Steffen Altmann & Armin Falk & Matthias Wibral, 2012. "Promotions and Incentives: The Case of Multistage Elimination Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 149-174.
    7. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-280, April.
    8. Svenja C. Sommer & Christoph H. Loch, 2004. "Selectionism and Learning in Projects with Complexity and Unforeseeable Uncertainty," Management Science, INFORMS, vol. 50(10), pages 1334-1347, October.
    9. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-890, September.
    10. John List & Daan Van Soest & Jan Stoop & Haiwen Zhou, 2014. "On the Role of Group Size in Tournaments: Theory and Evidence from Lab and Field Experiments," NBER Working Papers 20008, National Bureau of Economic Research, Inc.
    11. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    12. Svenja Sommer & Stylianos Kavadias, 2009. "The Effects of Problem Structure and Team Diversity on Brainstorming Effectiveness," Post-Print hal-00491685, HAL.
    13. Gerald Silverberg & Giovanni Dosi & Luigi Orsenigo, 2000. "Innovation, Diversity and Diffusion: A Self-Organisation Model," Chapters, in: Innovation, Organization and Economic Dynamics, chapter 14, pages 410-432, Edward Elgar Publishing.
    14. Dosi, Giovanni, 1993. "Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change," Research Policy, Elsevier, vol. 22(2), pages 102-103, April.
    15. Pablo Casas-Arce & F. Asís Martínez-Jerez, 2009. "Relative Performance Compensation, Contests, and Dynamic Incentives," Management Science, INFORMS, vol. 55(8), pages 1306-1320, August.
    16. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
    17. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall.
    18. Kai A. Konrad & Dan Kovenock, 2010. "Contests With Stochastic Abilities," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 89-103, January.
    19. Christian Terwiesch & Christoph H. Loch, 2004. "Collaborative Prototyping and the Pricing of Custom-Designed Products," Management Science, INFORMS, vol. 50(2), pages 145-158, February.
    20. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
    21. Karan Girotra & Christian Terwiesch & Karl T. Ulrich, 2010. "Idea Generation and the Quality of the Best Idea," Management Science, INFORMS, vol. 56(4), pages 591-605, April.
    22. Lee Fleming, 2001. "Recombinant Uncertainty in Technological Search," Management Science, INFORMS, vol. 47(1), pages 117-132, January.
    23. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
    24. Dana Sisak, 2009. "Multiple‐Prize Contests – The Optimal Allocation Of Prizes," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 82-114, February.
    25. Svenja C. Sommer & Christoph H. Loch & Jing Dong, 2009. "Managing Complexity and Unforeseeable Uncertainty in Startup Companies: An Empirical Study," Organization Science, INFORMS, vol. 20(1), pages 118-133, February.
    26. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 1-21.
    27. Christian Terwiesch & Yi Xu, 2008. "Innovation Contests, Open Innovation, and Multiagent Problem Solving," Management Science, INFORMS, vol. 54(9), pages 1529-1543, September.
    28. William J. Abernathy & Richard S. Rosenbloom, 1969. "Parallel Strategies in Development Projects," Management Science, INFORMS, vol. 15(10), pages 486-505, June.
    29. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
    30. Lars Bo Jeppesen & Karim R. Lakhani, 2010. "Marginality and Problem-Solving Effectiveness in Broadcast Search," Organization Science, INFORMS, vol. 21(5), pages 1016-1033, October.
    31. Stylianos Kavadias & Svenja C. Sommer, 2009. "The Effects of Problem Structure and Team Diversity on Brainstorming Effectiveness," Management Science, INFORMS, vol. 55(12), pages 1899-1913, December.
    32. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
    33. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
    34. Ely Dahan & Haim Mendelson, 2001. "An Extreme-Value Model of Concept Testing," Management Science, INFORMS, vol. 47(1), pages 102-116, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    2. Pavel Kireyev, 2016. "Markets for Ideas: Prize Structure, Entry Limits, and the Design of Ideation Contests," Harvard Business School Working Papers 16-129, Harvard Business School.
    3. Joel O. Wooten, 2022. "Leaps in innovation and the Bannister effect in contests," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2646-2663, June.
    4. Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2015. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 521-569.
    5. Sanjiv Erat & Vish Krishnan, 2012. "Managing Delegated Search Over Design Spaces," Management Science, INFORMS, vol. 58(3), pages 606-623, March.
    6. Christian Terwiesch & Yi Xu, 2008. "Innovation Contests, Open Innovation, and Multiagent Problem Solving," Management Science, INFORMS, vol. 54(9), pages 1529-1543, September.
    7. Lakshminarayana Nittala & Sanjiv Erat & Vish Krishnan, 2022. "Designing internal innovation contests," Production and Operations Management, Production and Operations Management Society, vol. 31(5), pages 1963-1976, May.
    8. Kim, Yongjae, 2017. "The effect of process management on different types of innovations: An analytical modeling approach," European Journal of Operational Research, Elsevier, vol. 262(2), pages 771-779.
    9. Loukas Balafoutas & E. Glenn Dutcher & Florian Lindner & Dmitry Ryvkin, 2017. "The Optimal Allocation Of Prizes In Tournaments Of Heterogeneous Agents," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 461-478, January.
    10. Michael Babington & Sebastian J. Goerg & Carl Kitchens, 2020. "Do Tournaments With Superstars Encourage or Discourage Competition?," Journal of Sports Economics, , vol. 21(1), pages 44-63, January.
    11. Natalicchio, A. & Messeni Petruzzelli, A. & Garavelli, A.C., 2017. "Innovation problems and search for solutions in crowdsourcing platforms – A simulation approach," Technovation, Elsevier, vol. 64, pages 28-42.
    12. John A. List & Daan van Soest & Jan Stoop & Haiwen Zhou, 2020. "On the Role of Group Size in Tournaments: Theory and Evidence from Laboratory and Field Experiments," Management Science, INFORMS, vol. 66(10), pages 4359-4377, October.
    13. Tor Eriksson & Sabrina Teyssier & Marie‐Claire Villeval, 2009. "Self‐Selection And The Efficiency Of Tournaments," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 530-548, July.
    14. De Paola, Maria & Gioia, Francesca & Scoppa, Vincenzo, 2018. "The adverse consequences of tournaments: Evidence from a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 151(C), pages 1-18.
    15. Dmitry Ryvkin & Andreas Ortmann, 2008. "The Predictive Power of Three Prominent Tournament Formats," Management Science, INFORMS, vol. 54(3), pages 492-504, March.
    16. Benny Moldovanu & Aner Sela & Xianwen Shi, 2012. "Carrots And Sticks: Prizes And Punishments In Contests," Economic Inquiry, Western Economic Association International, vol. 50(2), pages 453-462, April.
    17. Svenja C. Sommer & Elliot Bendoly & Stylianos Kavadias, 2020. "How Do You Search for the Best Alternative? Experimental Evidence on Search Strategies to Solve Complex Problems," Management Science, INFORMS, vol. 66(3), pages 1395-1420, March.
    18. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    19. Shanglyu Deng & Hanming Fang & Qiang Fu & Zenan Wu, 2023. "Information Favoritism and Scoring Bias in Contests," PIER Working Paper Archive 23-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    20. Laura J. Kornish & Karl T. Ulrich, 2011. "Opportunity Spaces in Innovation: Empirical Analysis of Large Samples of Ideas," Management Science, INFORMS, vol. 57(1), pages 107-128, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:57:y:2011:i:5:p:843-863. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.