Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis
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.
Volume (Year): 57 (2011)
Issue (Month): 5 (May)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Ely Dahan & Haim Mendelson, 2001. "An Extreme-Value Model of Concept Testing," Management Science, INFORMS, vol. 47(1), pages 102-116, January.
- 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.
- 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 262-80, April.
- 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.
- Bengt Holmstrom, 1982.
"Moral Hazard in Teams,"
Bell Journal of Economics,
The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
- Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2005.
"Contests for Status,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
139, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 1-21.
- 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.
- Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
- 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.
- 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.
- 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.
- 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.
- William J. Abernathy & Richard S. Rosenbloom, 1969. "Parallel Strategies in Development Projects," Management Science, INFORMS, vol. 15(10), pages 486-505, June.
- Christian Terwiesch & Yi Xu, 2008. "Innovation Contests, Open Innovation, and Multiagent Problem Solving," Management Science, INFORMS, vol. 54(9), pages 1529-1543, September.
- Svenja Sommer & Stylianos Kavadias, 2009. "The Effects of Problem Structure and Team Diversity on Brainstorming Effectiveness," Post-Print hal-00491685, HAL.
- Koenker,Roger, 2005.
Cambridge University Press, number 9780521845731, October.
- Dana Sisak, 2009. "Multiple-Prize Contests - The Optimal Allocation Of Prizes," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 82-114, 02.
- Lee Fleming, 2001. "Recombinant Uncertainty in Technological Search," Management Science, INFORMS, vol. 47(1), pages 117-132, January.
- Dosi, Giovanni, 1993.
"Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change,"
Elsevier, vol. 22(2), pages 102-103, April.
- Dosi, Giovanni, 1982. "Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change," Research Policy, Elsevier, vol. 11(3), pages 147-162, June.
- Silverberg, Gerald & Dosi, Giovanni & Orsenigo, Luigi, 1988. "Innovation, Diversity and Diffusion: A Self-organisation Model," Economic Journal, Royal Economic Society, vol. 98(393), pages 1032-54, December.
- Benny Moldovanu & Aner Sela, 2001.
"The Optimal Allocation of Prizes in Contests,"
American Economic Review,
American Economic Association, vol. 91(3), pages 542-558, June.
- Svenja Sommer & Christoph H. Loch & Jing Dong, 2009. "Managing Complexity and Unforeseeable Uncertainty in Startup Companies: an Empirical Study," Post-Print hal-00491684, HAL.
- Kai A. Konrad & Dan Kovenock, 2010.
"Contests With Stochastic Abilities,"
Western Economic Association International, vol. 48(1), pages 89-103, 01.
- 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.
- Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
- 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.
- 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.
- Christian Riis, 2010. "Efficient Contests," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 643-665, 09.
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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.