User:Maemst/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 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.

Example: Development of Free and Libre Open Source Software
The development of open source software / 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.