The Effects of Prize Structures on Innovative Performance
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 shared across the ten best innovations. Moreover, we find that the elasticity of creativity with respect to compensation schemes is much larger for teams than individual innovators.
We are grateful to Iwan Barankay, Gordon Hanson, Karim Lakhani, Craig McIntosh, participants at the Duke Workshop on Field Experiments in Strategy, Entrepreneurship, and Innovation and UC San Diego seminar participants for helpful feedback. This research was funded in part by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors. This study is included in the AEA RCT Registry (AEARCTR-0004026). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Projects submitted under a winner-takes-all structure were more novel, and more team driven, than those submitted under a structure...