Designing Dynamic Research Contests

Abstract

This paper studies the optimal design of dynamic research contests. We introduce interim transfers, which are paid in every period while the contest is ongoing, to an otherwise standard setting. We show that a contest where (i) the principal can stop the contest in any period, (ii) a constant interim transfer is paid to agents in each period while the contest is ongoing, and (iii) a final prize is paid once the principal stops the contest, is optimal for the principal and implements the first-best. (JEL D82, O32)

Information disclosure in dynamic research contests

“…14 An exception is Benkert and Letina (2020), who study global stopping equilibria, where all players search until a single agent passes a global cutoff. Conventional stopping equilibria (under standard stopping strategies) are called individual stopping equilibria in Benkert and Letina (2020). 15 In infinite-horizon contests with complete information, calendar time is generally not payoff relevant.…”

“…Importantly, as in Taylor (1995), a verifiable proxy for innovation quality is not required to achieve the first best, given that the interim transfers eliminate the sponsor's moral hazard of lying about the received innovation submissions and urging the agents to search further. 7 Our focus is on information disclosure and the agents in our infinite-horizon contest under the public policy also play the so-called global stopping equilibrium as in Benkert and Letina (2020), but we assume that the sponsor commits to truthfully reveal innovation quality according to the information disclosure policy. We will discuss Benkert and Letina (2020) and the verifiability issue further in detail at the end of Section 5.…”

“…7 Our focus is on information disclosure and the agents in our infinite-horizon contest under the public policy also play the so-called global stopping equilibrium as in Benkert and Letina (2020), but we assume that the sponsor commits to truthfully reveal innovation quality according to the information disclosure policy. We will discuss Benkert and Letina (2020) and the verifiability issue further in detail at the end of Section 5.…”

“…As inBenkert and Letina (2020), we assume that only the sponsor can verify the quality of submitted innovations. This creates a moral hazard problem for the sponsor when revealing information in the middle of the contest to the agents for them to decide whether to continue searching.8 This assumption simplifies our calculations but does not qualitatively change our results.…”

Diversification and Information in Contests

“…Kovenock et al (2015) study the effect of players sharing information throughout the contest. Feedback in dynamic contests has been recently studied by Bimpikis et al (2014), and Benkert and Letina (2016). Recent empirical work assessing the effect of performance feedback on competition outcomes includes Gross (2015Gross ( , 2017, Huang et al (2014), Kireyev (2016), Bockstedt et al (2016), and Lemus and Marshall (2017).…”