Motivating Creativity

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I am interested in Danil Dmitriev’s job market paper from UCSD:

How should one incentivize creativity when being creative is costly? We analyze a model of delegated bandit experimentation where the principal desires the agent to constantly switch to new arms to maximize the chance of success. The agent faces a fixed cost of switching. We show that the principal’s optimal reward scheme is maximally uncertain—the agent receives transfers for success, but their distribution has an extreme variance. Despite being stationary, the optimal reward scheme achieves the principal’s first-best outcome provided that the agent’s outside option is sufficiently valuable. Our results shed light on the non-transparent incentives used by online platforms, such as YouTube, and guide how to design incentives for creativity in such applications.

One feature of this model is that extreme uncertainty about rewards motivates project-switching, which is what the principle wants.  Most projects should offer low rewards, but a small percentage of winners should offer very high rewards.  In this model it is also the case that opaque bonus schemes perform better than transparent ones.  As I understand this result, the principal wants the agent to keep on switching and thus does not want to offer any kind of “safe haven” where the agent can rest securely.

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