This month, Network member Karim Lakhani, Network post-doc Michael Menietti and Kevin J. Boudreau published a new paper, "Performance responses to competition across skill levels in rank-order tournaments: field evidence and implications for tournament design," in The RAND Journal of Economics. The paper, which is openly accessible online, examines open innovation efforts on the TopCoder platform.
"Tournaments are widely used in the economy to organize production and innovation. We study individual data on 2775 contestants in 755 software algorithm development contests with random assignment. The performance response to added contestants varies nonmonotonically across contestants of different abilities, precisely conforming to theoretical predictions. Most participants respond negatively, whereas the highest-skilled contestants respond positively. In counterfactual simulations, we interpret a number of tournament design policies (number of competitors, prize allocation and structure, number of divisions, open entry) and assess their effectiveness in shaping optimal tournament outcomes for a designer."