Innovation Tournaments with Multiple Contributors

Abstract

This paper studies innovation tournaments in which an organizer seeks solutions to an innovation-related problem from a number of agents. Agents exert effort to improve their solutions but face uncertainty about their solution performance. The organizer is interested in obtaining multiple solutions - agents whose solutions contribute to the organizer’s utility are called contributors. Motivated by mixed policies observed in practice, where some tournaments are open and others restrict entry, we study when it is optimal for the organizer to conduct an open tournament or to restrict entry. Our analysis shows that whether an open tournament is optimal is tied to: (1) the variance of uncertainty as compared to the impact of effort; (2) the number of contributors, and (3) the skewness of the uncertainty distribution. Our results help explain mixed policies about restricting entry observed in practice as well as recent empirical and experimental findings.

Keywords: Crowdsourcing, Incentive, Technology, Uncertainty