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The Effects of Prize Structures on Innovative Performance

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  • Joshua Graff Zivin
  • Elizabeth Lyons

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.

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  • Joshua Graff Zivin & Elizabeth Lyons, 2021. "The Effects of Prize Structures on Innovative Performance," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 577-581, May.
    • Handle: RePEc:aea:apandp:v:111:y:2021:p:577-81
    DOI: 10.1257/pandp.20211119
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    Cited by:

    1. Erina Ytsma, 2022. "Effort and Selection Effects of Performance Pay in Knowledge Creation," CESifo Working Paper Series 10153, CESifo.
    2. Richard T. Carson & Joshua Graff Zivin & Jordan J. Louviere & Sally Sadoff & Jeffrey G. Shrader, 2022. "The Risk of Caution: Evidence from an Experiment," Management Science, INFORMS, vol. 68(12), pages 9042-9060, December.
    3. Richard Carson & Joshua S. Graff Zivin & Jordan Louviere & Sally Sadoff & Jeffrey G. Shrader Jr, 2020. "The Risk of Caution: Evidence from an R&D Experiment," NBER Working Papers 26847, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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