Initiating private-collective innovation: The fragility of knowledge sharing

Incentives to innovate are a central element of innovation theory. In the private-investment model, innovators privately fund innovation and then use intellectual property protection mechanisms to appropriate returns from these investments. In the collective-action model, public subsidy funds public goods innovations, characterized by non-rivalry and non-exclusivity in using these innovations. Recently, these models have been compounded in the private-collective innovation model where innovators privately fund public goods innovations. Private-collective innovation is illustrated in the case of open source software development. This paper contributes to the work on this model by investigating incentives that motivate innovators to share their knowledge in an initial situation, before there is a community to support the innovation process. We use game theory to predict knowledge sharing behavior in private-collective innovation, and test these predictions in a laboratory setting. The results show that knowledge sharing is a coordination game with multiple equilibria, reflecting the fragility of knowledge sharing between innovators with conflicting interests. The experimental results demonstrate important asymmetries in the fragility of knowledge sharing and, in some situations, more knowledge sharing than theoretically predicted. A behavioral analysis suggests that knowledge sharing in private-collective innovation is not only affected by material incentives, but also by social preferences such as fairness. The results offer general insights into the relationship between incentives and knowledge sharing and contribute to a better understanding of the initiation of private-collective innovation. (C) 2010 Elsevier B.V. All rights reserved.