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Incentives and Innovation: A Multi-Tasking Approach

54 Pages Posted: 16 Nov 2008 Last revised: 2 Jul 2014

Thomas F. Hellmann

University of Oxford - Said Business School; University of British Columbia (UBC) - Sauder School of Business; University of Oxford - Said Business School

Veikko Thiele

Queen's University - Queen's School of Business

Date Written: November 12, 2008

Abstract

This paper examines how employees trade off planned activities versus unplanned innovation, and how firms can choose incentives to affect these choices. It develops a multi-task model where employees makes choices between their assigned standard tasks, for which the firm has a performance measure and provides incentives, and privately observed innovation opportunities that fall outside of the performance metrics, and require ex-post bargaining. The model shows how firms adapt incentive compensations in the presence of such unplanned innovation. If innovation are highly firm-specific, firms provide lower-powered incentives for standard tasks to encourage more innovation, yet in equilibrium employees undertake too few innovation. The opposite occurs if innovation are less firm-specific. We also investigate the effectiveness of several possibilities to encourage innovation, such as tolerance for failure, investing in employee innovation, stock-based compensation, and the allocation of intellectual property rights.

Keywords: Innovation, multi-tasking, incentives

JEL Classification: D82, D86, M52

Suggested Citation

Hellmann, Thomas F. and Thiele, Veikko, Incentives and Innovation: A Multi-Tasking Approach (November 12, 2008). Queen's School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=1301712 or http://dx.doi.org/10.2139/ssrn.1301712

Thomas F. Hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8476 (Phone)
604-822-8477 (Fax)

HOME PAGE: http://strategy.sauder.ubc.ca/hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

Veikko Thiele (Contact Author)

Queen's University - Queen's School of Business ( email )

Goodes Hall
143 Union Street
Kingston, ON K7L 3N6
Canada
+1 613 533-2783 (Phone)
+1 613-533-6589 (Fax)

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