The Effects of Prize Structures on Innovative Performance

Innovation Economics
Written By Joshua Graff Zivin

Graff Zivin J and E Lyons “The Effects of Prize Structures on Innovative Performance,” American Economic Review: Papers and Proceedings, 111(2021): 577–581.

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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.

Joshua Graff Zivin
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