Dynamic Development Contests

Public, private, and not-for-profit organizations find advanced technology and product development projects challenging to manage due to the time and budget pressures, and turn to their development partners and suppliers to address their development needs. We study how dynamic development contests with enriched rank-based incentives and carefully tailored information design can help these organizations leverage their suppliers for their development projects while seeking to minimize project lead time by stimulating competition among them. We find that an organization using dynamically adjusted flexible rewards can achieve the minimum expected project lead time at a significantly lower cost than a fixed-reward policy. Importantly, the derived flexible-reward policy pays the minimum expected reward (i.e., achieves the first best). We further examine the case where the organization may not have sufficient budget to offer a reward that attains the minimum expected lead time. In this case, the organization uses the whole reward budget and supplements it with strategic information disclosure. Specifically, we derive an optimal information disclosure policy whereby any change in the state of competition is disclosed immediately with some probability that is weakly increasing over time. Our results indicate that dynamic rewards and strategic information disclosure are powerful tools to help organizations fulfill their development needs swiftly and cost effectively.

Funding: V. V. Krishnan is grateful for funding support from the Jacobs Family Foundation.

Supplemental Material: The e-companion is available at https://doi.org/10.1287/opre.2021.0420.