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We investigate the role of performance feedback, in the form of a public leaderboard, in innovation competition that features sequential search activity and a range of possible innovation qualities. We find that in the subgame perfect equilibrium of contests with a fixed ending date (i.e., finite horizon), providing public performance feedback results in lower equilibrium effort and lower innovation quality. We conduct a controlled laboratory experiment to test the theoretical predictions and find that the experimental results largely support the theory. In addition, we investigate how individual characteristics affect competitive innovation activity. We find that risk aversion is a significant predictor of behavior both with and without leaderboard feedback and that the direction of this effect is consistent with the theoretical predictions.


ESI Working Paper 19-34



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