How do I rule my solver’s relationship? An empirical investigation of governance structures in crowdsourcing contests

Abstract

In order to continually innovate, companies are increasingly opening their boundaries and signing crowdsourcing agreements with solution providers. However, crowdsourcing scholars are no closer to understanding how possible solvers’ opportunistic behaviours affect the governance structure proposed by the seeker at the moment the challenge is broadcast. Building on the managerial-choice approach of transaction cost economics, we aim to examine how contract conditions, specified in the request for proposal (RFP), aiming to reduce the effect of solver’s opportunistic behaviours whilst influencing seekers’ preferences toward proposing contractual agreements to manage the working relationship with the winning solver. Analysing detailed data gathered from 582 RFPs broadcasted in the NineSigma innovation crowdsourcing platform, we show that specific RFP contract conditions reducing the adverse selection and the moral hazard problem have a positive impact on the seekers’ preference toward proposing contractual agreements. Moreover, we find that the presence of the fairness social-context concept influences the relationship between the RFP contract conditions and the seeker’s propensity in proposing a contractual agreement. In fact, designing challenges with a strong fairness mechanism, in order to incentivize solvers’ participation and maximize the performance of the challenge and protect seekers from solvers’ opportunistic. Our study offers interesting contributions both to transaction cost economics and to the crowdsourcing for innovation literature.