Market failure type 1: Reduced general value of free innovators' developments

Even if slight modifications could make their designs serve others better, the incentives of self-rewarding free innovators may often be to focus only on their own needs. Of course, even if this is the path taken, the resulting free innovation might still be useful to others. It depends on how similar peoples' needs are with respect to that type of development. If you and I have the same needs, it will not matter if I develop a new product or service with only myself in mind—the product or service will turn out to be useful to you too. And, of course, if our needs are different, that will not be the case (Franke, Reisinger, and Hoppe 2009; Franke and von Hippel 2003).

The proportion of free innovators who do develop innovations potentially of benefit to others as well as to themselves must be determined empirically. Accordingly, my colleagues and I collected data on this matter via questions added to the Finland and Canada national surveys of household sector innovators discussed in chapter 2. In both surveys, respondents were asked questions to determine whether they thought that others would find their innovations valuable. Their responses were grouped into the three clusters shown in table 5.2. From the table, we see that, even without a market connection to free riders, 17 percent of the innovators thought their innovations would be of value to many others, and that an additional 30-40 percent thought their innovations would be of value to at least some others.

This fraction is likely a result of both needs held in common by free innovators and potential free-riding adopters, and self-rewarding motives that increase along with diffusion of the innovation. An

Table 5.2

General value of innovations developed by free innovators.

General value

Finland (n = 176)a

Canada (n = 1,028)

Cluster I: valuable to many or nearly all

17%

17%

Cluster II: valuable to some

44%

34%

Cluster III: valuable to few or to no one except the developer

39%

43%

Did not answer

0%

6%

Sources: For Finland, de Jong, von Hippel, Gault, Kuusisto, and Raasch 2015, table 5. For Canada, de Jong 2013, sections 3.3 a and b.

indication that the latter effect is playing a role comes from an analysis of data from Finland. Individuals who expressed any level of altruistic motivations (assigning at least one and at most 100 points to the innovation motive of helping others) were significantly more likely to have created a Cluster 1 innovation that could be of value to many than were individuals with no altruistic motivation at all (%2 = 9.2, df = 2, p = .01) (de Jong 2015).

 
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