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  4. May 2021
  5. The Effects of Prize Structures on Innovative Performance

The Effects of Prize Structures on Innovative Performance

  • Joshua Graff Zivin
  • Elizabeth Lyons
AEA Papers and Proceedings
vol. 111, May 2021
(pp. 577-81)
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Abstract

Successful innovation is essential for the survival and growth of organizations, but how best to incentivize innovation is poorly understood. We compare how two common incentive schemes affect innovative performance in a field experiment run in partnership with a large life sciences company. We find that a winner-takes-all compensation scheme generates significantly more novel innovation relative to a compensation scheme that offers the same total compensation but shares it across the ten best innovations. Moreover, the winner-takes-all scheme does not reduce innovative output on average and, among teams of innovators, generates more output than the less risky prize structure.

Citation

Graff Zivin, Joshua, and Elizabeth Lyons. 2021. "The Effects of Prize Structures on Innovative Performance." AEA Papers and Proceedings, 111: 577-81. DOI: 10.1257/pandp.20211119

Additional Materials

JEL Classification

  • O31 Innovation and Invention: Processes and Incentives
  • C93 Field Experiments
  • D82 Asymmetric and Private Information; Mechanism Design
  • D22 Firm Behavior: Empirical Analysis
  • J33 Compensation Packages; Payment Methods