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Innovation management in organizations

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  • Inderst, Roman

Abstract

This paper poses the question of how a firm should optimally choose both its organization and its compensation in the pursuit of innovation. One key result is that incentive pay arises as a robust instrument of innovation management both with and without delegation, although in the present model its primary purpose is not to elicit more effort for the creation of new ideas, but to ensure that new ideas are implemented if and only if this is efficient. While without delegation, the firm may "underinvest" in innovation, with delegation the opposite bias may arise as new ideas may be implemented too often ("overinvestment"). The optimal organizational choice trades off these two biases.

Suggested Citation

  • Inderst, Roman, 2009. "Innovation management in organizations," European Economic Review, Elsevier, vol. 53(8), pages 871-887, November.
    • Handle: RePEc:eee:eecrev:v:53:y:2009:i:8:p:871-887
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    References listed on IDEAS

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    8. Holmström, Bengt, 1989. "Agency Costs and Innovation," Working Paper Series 214, Research Institute of Industrial Economics.
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    Cited by:

    1. Krammer, Sorin, 2021. "Human Resource Policies And Firm Innovation: The Moderating Effects Of Economic And Institutional Context," MPRA Paper 109486, University Library of Munich, Germany.
    2. Daniel Shapiro & Yao Tang & Miaojun Wang & Weiying Zhang, 2017. "Monetary incentives and innovation in Chinese SMEs," Asian Business & Management, Palgrave Macmillan, vol. 16(3), pages 130-157, July.
    3. Krammer, Sorin M.S., 2022. "Human resource policies and firm innovation: The moderating effects of economic and institutional context," Technovation, Elsevier, vol. 110(C).

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    Keywords

    Incentive pay Innovation Delegation;

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