Are Contests Effective for Online Labor Markets?

The emergence and growth of online labor markets have enhanced the efficiency in labor sourcing. Online labor markets have two types of job scheme, traditional contract-based scheme and new contest-based scheme. The contest-based scheme is introduced in online labor markets to reduce the risk faced by employers because employers can observe and compare work outcomes from various workers before paying for the final selection. However, a question is whether the use of contests in online labor markets is effective in producing satisfactory work outcomes for employers. This study aims to examine the impact of contests relative to contracts on perceived work quality, using data from a large online labor market that utilizes both types of compensation schemes. Our results suggest that jobs posted under contracts tend to generate higher perceived work quality compared to those posted under contests. Then, we further investigate possible reasons and related moderators