Money, glory and cheap talk

Crowdsourcing is a new Web phenomenon, in which a firm takes a function once performed in-house and outsources it to a crowd, usually in the form of an open contest.Designing efficient crowdsourcing mechanisms is not possible without deep understanding of incentives and strategic choices of all participants.This paper presents an empirical analysis of determinants of individual performance in multiple simultaneous crowdsourcing contests using a unique dataset for the world's largest competitive software development portal: TopCoder.com. Special attention is given to studying the effects of the reputation system currently used by TopCoder.com on behavior of contestants. We find that individual specific traits together with the project payment and the number of project requirements are significant predictors of the final project quality. Furthermore, we find significant evidence of strategic behavior of contestants. High rated contestants face tougher competition from their opponents in the competition phase of the contest. In order to soften the competition, they move first in the registration phase of the contest, signing up early for particular projects. Although registration in TopCoder contests is non-binding, it deters entry of opponents in the same contest; our lower bound estimate shows that this strategy generates significant surplus gain to high rated contestants. We conjecture that the reputation + cheap talk mechanism employed by TopCoder has a positive effect on allocative efficiency of simultaneous all-pay contests and should be considered for adoption in other crowdsourcing platforms.