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Performance feedback in competitive product development
Author(s) -
Gross Daniel P.
Publication year - 2017
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12182
Subject(s) - incentive , quality (philosophy) , principal (computer security) , computer science , product (mathematics) , sample (material) , industrial organization , counterfactual conditional , new product development , microeconomics , economics , business , marketing , counterfactual thinking , mathematics , computer security , philosophy , chemistry , geometry , epistemology , chromatography
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 4294 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 trade‐off, 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.