Private-collective model of innovation

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 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 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.

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