The Effects of Prize Structures on Innovative Performance

NBER Working Paper No. 26737

Issued in February 2020

NBER Program(s):Labor Studies, Productivity, Innovation, and Entrepreneurship



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.

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Document Object Identifier (DOI): 10.3386/w26737