Incentives in Contests with Heterogeneous Solvers

Abstract

In a contest in which solvers with heterogeneous expertise exert effort to develop solutions, a recent paper (Terwiesch, C., Y. Xu. 2008. Innovation contests, open innovation and multiagent problem solving. Management Science. 54( 9) 1529-1543) argues that as more solvers enter the contest, every solver will reduce effort due to a lower probability of winning the contest. This paper corrects mistakes in this theory, and shows that there exist high-expertise solvers who may raise their effort in response to increased competition. This is because more entrants raise the expected best performance among other solvers, creating positive incentives for solvers to exert higher effort to win the contest. Due to this positive effect, we find that a free-entry open contest is more likely to be optimal to a contest organizer than what Terwiesch and Xu (2008) and other prior literature asserted.

Optimal Award Scheme in Innovation Tournaments

“…This is the standard approach to analyzing an award scheme in the extant literature (Moldovanu and Sela 2001, Kalra and Shi 2001, Terwiesch and Xu 2008. Ales et al (2016) and Korpeoglu and Cho (2015) further study when it is optimal for the organizer to have an open tournament with free entry or to restrict entry under the WTA scheme. In a free-entry open tournament which allows all agents who wish to participate to do so, N corresponds to a pool of agents who can potentially participate in the tournament.…”

OM Forum—Innovative Online Platforms: Research Opportunities

“…This is because in the presence of a large number of solvers in a contest, generally solvers put in less effort, which dominates the diversity effect. Boudreau et al (2016) examined empirically and Körpeoğlu and Cho (2017) examined theoretically the impact of solver heterogeneity and showed that solvers can react differently to more intense competition.…”

Innovation and New Product Development: Reflections and Insights from the Research Published in the First 20 Years of Manufacturing & Service Operations Management

“…• Ideation. Recently, a sizable number of studies have sought to understand innovation tournaments Xu 2008, Terwiesch andUlrich 2009) as processes that enable more open and collaborative innovation ecosystems (Körpeoglu and Cho 2017, Wooten and Ulrich 2017, Mihm and Schlapp 2018. Although several questions remain unanswered, the capacity to collect data from such ideation processes offers a unique opportunity to study the evolution of ideas and paradigms/styles (Chan et al 2017) and the role of feedback as well as the implications of different processes and incentives on the creative output.…”