Performance Feedback in Competitive Product Development

Daniel P. Gross

Forthcoming at The RAND Journal of Economics

2016

Performance feedback is ubiquitous in competitive settings where new products are developed. This article introduces a fundamental tension between incentives and improvement in the provision of feedback. Using a sample of four thousand commercial logo design tournaments, I show that feedback reduces participation but improves the quality of subsequent submissions, with an ambiguous effect on high-quality output. To evaluate this tradeoff, I develop a procedure to estimate agents’ effort costs and simulate counterfactuals under alternative feedback policies. The results suggest that feedback on net increases the number of high-quality ideas produced and is thus desirable for a principal seeking innovation.

Model Construction and Estimation, Econometrics of Games and Auctions, Microeconomic Behavior: Underlying Principles, Asymmetric and Private Information, Mechanism Design, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness, Personnel Economics: Labor Contracting Devices, Innovation and Invention: Processes and Incentives, Management of Technological Innovation and R&D, Capitalist Systems: General, Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics, Comparative Economic Systems: General

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