Incentives and Innovation: A Multitasking Approach

Hellmann, Thomas and Thiele, Veikko (2011) Incentives and Innovation: A Multitasking Approach. American Economic Journal: Microeconomics, 3 (1). pp. 78-128.


This paper develops a multitask model where employees make choices between their assigned standard tasks, for which the firm has a performance measure and provides incentives, and privately observed innovation opportunities that fall outside of the performance metrics, and require ex post bargaining. If innovations are highly firm specific, firms provide lower-powered incentives for standard tasks to encourage more innovation, yet in equilibrium employees undertake too few innovations. The opposite occurs if innovations are less firm specific. We also investigate the effectiveness of several possibilities to encourage innovation, such as tolerance for failure, stock-based compensation, and the allocation of intellectual property rights. (JEL D21, J33, M12, O31, O34)

Item Type: Article
Keywords: Firm Behavior; Executive Compensation; Innovation and Invention; Intellectual Property Rights; finance
Subject(s): Finance
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Date Deposited: 11 Dec 2014 11:10
Last Modified: 27 Feb 2017 11:49

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