ECOS 2201 Economics of Competition and Strategy
Suraj Prasad
Semester 2, 2022
Assignment – Motivating Innovation in Organizations
1 Details
The main objective of this assignment is to get you to apply concepts learnt in the
class to real world problems. In terms of allocating time, you should set aside about
2 hours a week to work on the assignment. The assignment (typed with 11 point font
and double spacing) has to be submitted on Canvas through Turnitin by midnight
4th of November (Friday), 2022 (more details on the link and how to submit the
assignment will be provided closer to the date).
2 Topic
To remain successful in the face of competition, organizations have to innovate.
As an example, think of using technology to develop new products and services.
Innovation, however, is a lengthy and an uncertain process, with many (if not most)
projects ending in failure. Organizations thus have to pay careful attention to how
they motivate and reward their workers for innovation. For this assignment, I want
you to use tools and concepts related to this class to think about how to design
incentives for innovation in an organization.
1. Select a firm or company where innovation (for example developing new prod-
ucts and services) plays a central role. Using specific examples from the com-
pany, illustrate how innovation is a complex process – for example, the duration
of projects and the probability of failure of projects.
2. Discuss why motivating innovation is difficult. For example, what can go wrong
if we rely on very simple models of pay for performance.
3. Suggest way(s) in which the basic agency framework from this class (lectures
1 to 6) can be modified to address these difficulties in providing incentives in
the point above. You can focus on one change or a group of relevant changes.
1
4. How would you incorporate this modification into the model? You do not need
to solve the model – you can just summarize these changes through some key
equations or even verbally describe these changes.
5. What tradeoffs do you expect from your proposed model? Think of yourself
as a consultant to the CEO of one of these companies, advising her on how to
design incentives for innovation.
3 Length
The assignment should be less than 3 pages (including references), double spaced,
11 point font.
4 Grading
The assignment counts for 15 percent of your overall grade in this unit. I will use
three criteria for the grading.
How “creative” your assignment is – for example, highlighting a novel incentive
problem associated with innovation and suggesting a way to fix it.
How logical your argument is and the insights that your model can deliver.
You want your model to strike a balance between including (the most) relevant
details and being concise. This can be difficult.
The clarity of your writing and arguments. Using a simple graph to capture
some of your main ideas could help with this.
5 References
Make sure that you reference your work if you draw on other sources.