Managing Innovation in a Crowd

Innovation and Economic Growth, Media and Content, Internet and Networks, the Internet, and Cloud Computing

Article Snapshot


Daron Acemoglu, Mohamed Mostagir and Asuman Ozdaglar


MIT Department of Economics Working Paper No. 14-04, 2014


Crowdsourcing entails calling on the public to work on tasks. Ideally, low-skill workers try the task first, with high-skill workers trying the task only when low-skill workers fail. Workers self-select into this hierarchy if rewards increases each time a worker fails to complete a task.

Policy Relevance

Crowdsourcing workers can be managed as if they were within a firm. Rewards encourage workers to organize themselves without centralized control.

Main Points

  • Goldcorp, a gold mining company, was almost bankrupt when it offered geological survey data to the public, offering prizes to those who predicted where gold would be found; the crowd’s choice of 110 sites yielded $8 million in gold, making Goldcorp the second largest gold mining company in the world.
  • Crowdsourcing is a new method, entailing outsourcing tasks to a broad set of workers using a virtual marketplace.
  • In a centralized firm, managers know the skill level of workers, even if they do not know the difficulty of a pool of tasks. With crowdsourcing, both the skill level of workers and the difficulty of tasks are unknown, and control of workers is decentralized.
  • The effectiveness of a system for managing workers can be assessed by considering if it wastes the time of high-skilled workers, a valuable resource.
  • In theory, managers could send tasks to the high-skilled workers first, so that hard problems do not reach the less skilled, but this is inefficient, as some high-skilled workers will waste time solving easy problems.
  • The best way to manage tasks of unknown difficulty is a skill hierarchy:
    • A group of less-skilled workers attempt the tasks first.
    • High-skilled workers engage in a task only if the low-skilled workers fail to finish it.
  • The output of high-skilled workers is reduced when low-skilled workers attempt tasks first; ordinarily, high-skilled workers will prefer to remain in the lower tier and tackle easy tasks.
  • High-skilled workers will self-select into a second tier that tackles only harder tasks, if each time a worker fails to complete a task, the price paid for completing that task rises.


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