How to Optimally Design Contests in Development Settings for Rapid and Efficient Results: Firms increasingly leverage their expert suppliers to develop innovative products and services while minimizing both time-to-market and expenses. In “Dynamic Development Contests,” Sina Khorasani, Ersin Korpeoglu, and Vish Krishnan study how companies can effectively organize contests to stimulate development efforts from competing suppliers to minimize project lead times while keeping the cost of incentives in check. Their characterization of the optimal designs reveals that flexible rewards are most effective when funds are sufficient. However, in cases where resources are constrained, strategic information disclosure in the form of probabilistic disclosure of any change in the state of competition serves as a valuable incentive instrument that helps contest organizers achieve their lead-time minimization objectives.

Problem definition: Firms seek to use the contest format to source solutions from a broader network of outside solvers. We study the application of the contest approach in multistage settings and show how and when screening of contestants between stages can produce improved contest outcomes. Methodology/results: We present an application-driven game-theoretic model to capture imperfections in screening using the true-positive rate (sensitivity) and the true-negative rate (specificity). Specifically, we consider a two-stage contest with a screening decision by the firm between the stages. Solvers face uncertainty about their probability of fit, and the final quality of the solution is dependent on the performance across both stages. We identify two mechanisms through which screening induces greater effort, namely the encouragement effect and the competitive contest effect, and characterize how screening should be tuned to the problem setting. We find that filtering out true negatives in contests with exogenous solvers’ probability of fit is optimal for solution-seeking firms. Our results indicate that in case of problems with endogenous probability of fit and less up-front complexity, coarse (imperfect) screening is beneficial in order to manage competition and stimulate greater effort, but it behooves the firm to resort to more accurate screening otherwise. We also derive nuanced results for the case when a seeker faces screening constraints and must balance screening sensitivity and specificity. Managerial implications: Our work provides firms an additional degree of freedom in terms of specific and sensitive screening to design and run contests and to better engage outside solvers. We derive actionable results and translate them into a managerial framework to help fine-tune the screening mechanism for improved contest performance. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2021.0378 .

We derive an optimal dynamic contest for environments where effort can be monitored only through a coarse, binary performance measure and the principal chooses prize-allocation and termination rules together with a real-time feedback policy for the contestants. The optimal contest takes a stark cyclical form: contestants are kept fully apprised of their own successes, and at the end of each fixed-length cycle, if at least one agent has succeeded, the contest ends and the prize is shared equally among all successful agents irrespective of when they succeeded; otherwise, the designer informs all contestants that nobody has yet succeeded and the contest resets. Applications include promotions, innovation contests, and proof-of-work protocols.

Problem definition: Firms seek to use the contest format to source solutions from a broader network of outside solvers. We study the application of the contest approach in multi-stage settings, and show how and when screening of contestants between stages can produce improved contest outcomes.Methodology/results: We present an application-driven game-theoretic model to capture imperfections in screening using the true positive rate (Sensitivity) and the true negative rate (Specificity). Specifically, we consider a two-stage contest with a screening decision by the firm between the stages. Solvers face uncertainty about their probability of fit and the final quality of the solution is dependent on the performance across both stages. We identify two mechanisms through which screening induces greater effort, namely the encouragement effect and the competitive contest effect, and characterize how screening should be tuned to the problem setting. We find that limiting contestant entry in contests with exogenous solvers’ probability of fit is optimal for solution-seeking firms. Our results indicate that in case of problems with endogenous probability of fit and less upfront complexity, coarse (imperfect) screening is beneficial in order to manage competition and stimulate greater effort, but it behooves the firm to resort to more accurate screening otherwise. We also derive nuanced results for the case when a Seeker faces screening constraints and must balance screening sensitivity and specificity.Managerial implications: Our work provides firms an additional degree of freedom, in terms of specific and sensitive screening to design and run contests and to better engage outside solvers. We derive actionable results and translate them into a managerial framework to help fine-tune the screening mechanism for improved contest performance.

Firms seeking solutions to their innovation problems have attempted to use the contest format to source solutions from a broader network of solvers. However, sourcing quality solutions for complex problems has proven to be challenging as real-world contests end without satisfactory solutions for the seeker. Contestants may simply lack the resources and guidance to tackle complex innovation problems. To leverage the contest mechanism for sourcing solutions to complex problems, we propose a hybrid approach called the Curated Contest - in which firms benefit from competition among contestants but also engage in curation, by sifting and screening intermediate contestant submissions and potentially offering various forms of support for developing proof of concept and validating ideas. However, contest-curation must take into account that screening itself may be imperfect and that there may be information asymmetries between solution seekers and skeptical contestants. In the current paper, we provide guidance to the solution-seeking firm on when and how to organize such curated contests. We find that screening can stimulate additional effort from contestants. Firms can gain solver credibility by fine-tuning the reward size and other support schemes including late-stage compensation and proof of concept cost-sharing. We present a managerial framework to help design a carefully curated contest, which can help firms realize more effort from contestants.