Managing Innovation in a Crowd
Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
University of Michigan, Stephen M. Ross School of Business
Asuman E. Ozdaglar
Massachusetts Institute of Technology (MIT) - Department of Electrical Engineering and Computer Science
January 17, 2014
MIT Department of Economics Working Paper No. 14-04
Crowdsourcing is an emerging technology where innovation and production are sourced out to the public through an open call. At the center of crowdsourcing is a resource allocation problem: there is an abundance of workers but a scarcity of high skills, and an easy task assigned to a high-skill worker is a waste of resources. This problem is complicated by the fact that the exact difficulties of innovation tasks may not be known in advance, so tasks that require high-skill labor cannot be identified and allocated ahead of time. We show that the solution to this problem takes the form of a skill hierarchy, where tasks are first attempted by low-skill labor, and high skill workers only engage with a task if less skilled workers are unable to finish it. This hierarchy can be constructed and implemented in a decentralized manner even though neither the difficulties of the tasks nor the skills of the candidate workers are known. We provide a dynamic pricing mechanism that achieves this implementation by inducing workers to self-select into different layers. The mechanism is simple: each time a task is attempted and not finished, its price (reward upon completion) goes up.
Number of Pages in PDF File: 35
Keywords: crowdsourcing, crowd innovation, hierarchies, matching
JEL Classification: D83, D20, L22
Date posted: January 22, 2014 ; Last revised: February 25, 2014
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