We study contests for innovation with learning about the innovation’s feasibility and opponents’ outcomes. We characterize contests that maximize innovation when the designer chooses a prize-sharing scheme and a disclosure policy. A “public winner-takes-all” contest dominates public contests—where any success is immediately disclosed—with any other prize-sharing scheme as well as winner-takes-all contests with any other disclosure policy. Yet, jointly modifying prize sharing and disclosure can increase innovation. In a broad class of mechanisms, it is optimal to share the prize with disclosure following a certain number of successes; under simple conditions, a “hidden equal-sharing” contest is optimal.
This paper studies a model of long-term contracting for experimentation. We consider a principal–agent relationship with adverse selection on the agent’s ability, dynamic moral hazard, and private learning about project quality. We find that each of these elements plays an essential role in structuring dynamic incentives, and it is only their interaction that generally precludes efficiency. Our model permits an explicit characterization of optimal contracts.