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Innovation Tournaments with Multiple Contributors

33 Pages Posted: 12 Jun 2013  

Laurence Ales

Carnegie Mellon University - David A. Tepper School of Business

Soo-Haeng Cho

Carnegie Mellon University - Tepper School of Business

Ersin Körpeoğlu

School of Management, University College London

Date Written: May 2, 2017

Abstract

This paper studies an innovation tournament in which an organizer seeks solutions to an innovation-related problem from a number of independent agents. While agents exert efforts to improve their solutions, their outcomes are uncertain. We call an agent whose ex-post output contributes to the organizer's utility a contributor. We analyze a general model of uncertainty and utility functions with multiple contributors, and we show that these two factors play a crucial role in decision-making of agents and the organizer. Specifically, contrary to existing theories, increased competition in a tournament can have a positive impact on agents' incentives to exert effort when agents expect good outcomes with high likelihood, and a free-entry open tournament should be encouraged only when the problem is highly uncertain or the organizer seeks diverse solutions from many contributors. Our results are consistent with recent empirical evidence, hence helping to close a gap in the extant literature between theory and practice.

Keywords: Contract, Incentive, Outsourcing, Technology, Uncertainty

Suggested Citation

Ales, Laurence and Cho, Soo-Haeng and Körpeoğlu, Ersin, Innovation Tournaments with Multiple Contributors (May 2, 2017). Available at SSRN: https://ssrn.com/abstract=2277215 or http://dx.doi.org/10.2139/ssrn.2277215

Laurence Ales

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Soo-Haeng Cho (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Ersin Körpeoğlu

School of Management, University College London ( email )

1 Canada Square Canary Wharf
London, E14 5AA
United Kingdom

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