Private-collective model of innovation
Encyclopedia
The term private-collective model of innovation was coined by Eric von Hippel
and Georg von Krogh
in their 2003 publication in Organization Science
. This innovation model represents a combination of the private investment model and the collective-action innovation model.
In the private investment model innovators appropriate financial returns from innovations through intellectual property rights such as patents, copyright, licenses, or trade secrets. Any knowledge spillover
reduces the innovator's benefits, thus freely revealed knowledge is not in the interest of the innovator.
The collective-action innovation model
explains the creation of public goods which are defined by the non-rivalry of benefits and non-excludable access to the good. In this case the innovators do not benefit more than any one else not investing into the public good, thus free-riding
occurs. In response to this problem, the cost of innovation has to be distributed, therefore governments typically invest into public goods through public funding.
As combination of the these two models the private-collective model of innovation explains the creation of public goods through private funding. The model is based on the assumption that the innovators privately creating the public goods benefit more than the free-riders only consuming the public good. While the result of the investment is equally available to all, the innovators benefit through the process of creating the public good. Therefore, private-collective innovation occurs when the process-related rewards exceed the process-related costs .
A recent laboratory study traced the initiation of private-collective innovation to the first decision to share knowledge in a two-person game with multiple equilibria. The results indicate fragility: when individuals face opportunity costs to sharing their knowledge with others they quickly turn away from the social optimum of mutual sharing. The opportunity costs of the "second player", the second person deciding whether to share, have a bigger (negative) impact on knowledge sharing than the opportunity costs of the first person to decide. Overall, the study also observed sharing behavior in situations where none was predicted.
/ Free Software
(consequently named Free and Libre Open Source Software - FLOSS
) is the most prominent example of private-collective innovation. By definition, FLOSS represents a public good
. It is non-rival because copying and distributing software does not decrease its value. And it is non-excludable because FLOSS licenses enable everyone to use, change and redistribute the software without any restriction.
While FLOSS is created by many unpaid individuals it has been shown that technology firms invest substantially in the development of FLOSS. These companies release previously proprietary software under FLOSS licenses, employ programmers to work on established FLOSS projects, and fund entrepreneurial firms to develop certain features. In this way, private entities invest into the creation of public goods.
Eric von Hippel
Eric von Hippel is an economist and a professor at the MIT Sloan School of Management, specializing in the nature and economics of distributed and open innovation. He is best known for his work developing the concept of user innovation – that end-users, rather than manufacturers, are...
and Georg von Krogh
Georg von Krogh
Georg von Krogh is a Professor at ETH Zurich and holds the Chair of Strategic Management and Innovation. He was also the Head of ETH Zurich's Department of Management, Technology, and Economics during the period 2008 - 2011....
in their 2003 publication in Organization Science
Organization Science: A Journal of the Institute for Operations Research and the Management Sciences
Organization Science: A Journal of the Institute for Operations Research and the Management Sciences is a peer-reviewed scholarly journal published by the Institute for Operations Research and the Management Sciences INFORMS...
. This innovation model represents a combination of the private investment model and the collective-action innovation model.
In the private investment model innovators appropriate financial returns from innovations through intellectual property rights such as patents, copyright, licenses, or trade secrets. Any knowledge spillover
Knowledge spillover
Knowledge spillover is an exchange of ideas among individuals. In knowledge management economics, a knowledge spillover is a non-rival knowledge market externality that has a spillover effect of stimulating technological improvements in a neighbor through one's own innovation...
reduces the innovator's benefits, thus freely revealed knowledge is not in the interest of the innovator.
The collective-action innovation model
Collective action
Collective action is the pursuit of a goal or set of goals by more than one person. It is a term which has formulations and theories in many areas of the social sciences.-In sociology:...
explains the creation of public goods which are defined by the non-rivalry of benefits and non-excludable access to the good. In this case the innovators do not benefit more than any one else not investing into the public good, thus free-riding
Free rider problem
In economics, collective bargaining, psychology, and political science, a free rider is someone who consumes a resource without paying for it, or pays less than the full cost. The free rider problem is the question of how to limit free riding...
occurs. In response to this problem, the cost of innovation has to be distributed, therefore governments typically invest into public goods through public funding.
As combination of the these two models the private-collective model of innovation explains the creation of public goods through private funding. The model is based on the assumption that the innovators privately creating the public goods benefit more than the free-riders only consuming the public good. While the result of the investment is equally available to all, the innovators benefit through the process of creating the public good. Therefore, private-collective innovation occurs when the process-related rewards exceed the process-related costs .
A recent laboratory study traced the initiation of private-collective innovation to the first decision to share knowledge in a two-person game with multiple equilibria. The results indicate fragility: when individuals face opportunity costs to sharing their knowledge with others they quickly turn away from the social optimum of mutual sharing. The opportunity costs of the "second player", the second person deciding whether to share, have a bigger (negative) impact on knowledge sharing than the opportunity costs of the first person to decide. Overall, the study also observed sharing behavior in situations where none was predicted.
Example: Development of Free and Libre Open Source Software
The development of open source softwareOpen source
The term open source describes practices in production and development that promote access to the end product's source materials. Some consider open source a philosophy, others consider it a pragmatic methodology...
/ Free Software
Free software
Free software, software libre or libre software is software that can be used, studied, and modified without restriction, and which can be copied and redistributed in modified or unmodified form either without restriction, or with restrictions that only ensure that further recipients can also do...
(consequently named Free and Libre Open Source Software - FLOSS
Floss
Floss may refer to:* Dental floss, used to clean teeth* Embroidery thread, machine or hand-spun yarn for embroidery* Fairy floss or candyfloss, alternative names for cotton candy* Rousong, i.e. meat floss-Computing:...
) is the most prominent example of private-collective innovation. By definition, FLOSS represents a public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
. It is non-rival because copying and distributing software does not decrease its value. And it is non-excludable because FLOSS licenses enable everyone to use, change and redistribute the software without any restriction.
While FLOSS is created by many unpaid individuals it has been shown that technology firms invest substantially in the development of FLOSS. These companies release previously proprietary software under FLOSS licenses, employ programmers to work on established FLOSS projects, and fund entrepreneurial firms to develop certain features. In this way, private entities invest into the creation of public goods.