Markets for Ideas: Prize Structure, Entry Limits, and the Design of Ideation Contests

Abstract

I develop an empirical model of idea generation contests with heterogeneous participants and endogenous entry, fit the model to data from a platform used by major advertisers, and simulate counterfactual contest designs. The empirical model resolves ambiguous predictions yielded by contest theory about the effects of different prize structures on contest outcomes. Simulations reveal the impact of strategies that hold fixed total award and balance competition by handicapping advantaged participants. Increasing the number of prizes while restricting the number of prizes per participant can improve outcomes for the platform. The results provide guidance for the design of large contests.

Keywords: contest design, incentives, innovation, advertising, idea generation, heterogeneity, entry, structural estimation, partial identification

JEL Classification: C51, C57, D82, L86, M31, M37, M55, O31