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American Economic Journal: Microeconomics: Vol. 3 No. 1 (February 2011)

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Incentives and Innovation: A Multitasking Approach

Article Citation

Hellmann, Thomas, and Veikko Thiele. 2011. "Incentives and Innovation: A Multitasking Approach." American Economic Journal: Microeconomics, 3(1): 78-128.

DOI: 10.1257/mic.3.1.78

Abstract

This paper develops a multitask model where employees make 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. If innovations are highly firm specific, firms provide lower-powered incentives for standard tasks to encourage more innovation, yet in equilibrium employees undertake too few innovations. The opposite occurs if innovations are less firm specific. We also investigate the effectiveness of several possibilities to encourage innovation, such as tolerance for failure, stock-based compensation, and the allocation of intellectual property rights. (JEL D21, J33, M12, O31, O34)

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Authors

Hellmann, Thomas (U British Columbia)
Thiele, Veikko (Queen's U, Kingston)

JEL Classifications

D21: Firm Behavior: Theory
J33: Compensation Packages; Payment Methods
M12: Personnel Management; Executive Compensation
O31: Innovation and Invention: Processes and Incentives
O34: Intellectual Property Rights

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