Performance feedback in competitive product development

de Daniel P. Gross, Harvard Business School

Performance feedback is ubiquitous in competitive settings where new products are developed. This paper introduces a fundamental tension between incentives and improvement in the provision of feedback. Using a sample of 4,000 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 tradeoff, 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.