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Welfare Implications of User Innovation

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  • Joachim Henkel
  • Eric von Hippel

Abstract

The literature on new goods and social welfare generally assumes that innovations are developed by manufacturers. But innovation by users has been found to also be an important part of innovative activity in the economy. In this paper we explore the impact of users as a source of innovation on product diversity, innovation, and welfare. We examine the impact of user innovation on inefficiencies that bias the provision of new goods, and find that most are either alleviated or non-existent for user innovation. There are three major reasons for this. First, user innovations tend to complement manufacturer innovations, filling small niches of high need left open by commercial sellers. Second, user innovation helps to reduce information asymmetries between manufacturers and users. Third, user innovations are more likely to be freely revealed than manufacturer innovations. We conclude that, compared to a counterfactual world without such innovation, social welfare is most likely to be increased by the presence of user innovation. We derive implications for policy makers and managers
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Suggested Citation

  • Joachim Henkel & Eric von Hippel, 2005. "Welfare Implications of User Innovation," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 73-87, January.
  • Handle: RePEc:kap:jtecht:v:30:y:2005:i:2_2:p:73-87
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    Cited by:

    1. repec:cbu:jrnlec:y:2017:v:5:p:4-14 is not listed on IDEAS
    2. Pier Patrucco, 2008. "The economics of collective knowledge and technological communication," The Journal of Technology Transfer, Springer, vol. 33(6), pages 579-599, December.
    3. David, Paul A. & Shapiro, Joseph S., 2008. "Community-based production of open-source software: What do we know about the developers who participate?," Information Economics and Policy, Elsevier, vol. 20(4), pages 364-398, December.
    4. Stephen M. Maurer & Suzanne Scotchmer, 2006. "Open Source Software: The New Intellectual Property Paradigm," NBER Working Papers 12148, National Bureau of Economic Research, Inc.
    5. von Hippel, Eric, 2010. "Open User Innovation," Handbook of the Economics of Innovation, Elsevier.
    6. repec:eee:respol:v:47:y:2018:i:1:p:277-288 is not listed on IDEAS
    7. Tietze, Frank & Pieper, Thorsten & Herstatt, Cornelius, 2013. "To own or not to own: How ownership affects user innovation - An empirical study in the German rowing community," Working Papers 73, Hamburg University of Technology (TUHH), Institute for Technology and Innovation Management.
    8. Zhang, De-Peng & Yang, Chen-hui & Zhang, Feng-Hua, 2014. "Analysis of the equity preference influence in customer participation incentives," Economic Modelling, Elsevier, vol. 41(C), pages 1-8.
    9. Jordan Robert Gamble & Michael Brennan & Rodney Mcadam, 2016. "A Contemporary And Systematic Literature Review Of User-Centric Innovation: A Consumer Perspective," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-45, January.
    10. Henkel, Joachim, 2006. "Selective revealing in open innovation processes: The case of embedded Linux," Research Policy, Elsevier, vol. 35(7), pages 953-969, September.
    11. Yasuhiro Arai & Shinya Kinukawa, 2014. "Copyright infringement as user innovation," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 38(2), pages 131-144, May.
    12. Du, Jingshu & Leten, Bart & Vanhaverbeke, Wim, 2014. "Managing open innovation projects with science-based and market-based partners," Research Policy, Elsevier, vol. 43(5), pages 828-840.
    13. Jeroen P.J. de Jong & Eric von Hippel, 2013. "User innovation: business and consumers," Chapters,in: Handbook of Innovation Indicators and Measurement, chapter 5, pages 109-132 Edward Elgar Publishing.
    14. repec:dau:papers:123456789/12317 is not listed on IDEAS
    15. Jeroen de Jong & Eric von Hippel, 2010. "Open, distributed and user-centered: Towards a paradigm shift in innovation policy," Scales Research Reports H201009, EIM Business and Policy Research.
    16. Jeroen de Jong, 2014. "The Emperical Scope of User Innovation," Scales Research Reports H201403, EIM Business and Policy Research.

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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