Working Paper: NBER ID: w26737
Authors: 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 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.
Keywords: innovation; prize structure; incentives; risk-taking; field experiment
JEL Codes: J24; M54; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| winner-takes-all scheme (D72) | novelty of innovations (O35) |
| shared prize structure (D44) | novelty of innovations (O35) |
| risk preferences + winner-takes-all scheme (D81) | innovation output (O36) |
| risk aversion + winner-takes-all contest (D81) | novelty of innovations (O35) |
| winner-takes-all scheme (D72) | creativity elasticity (O39) |