Welfare Implications of User Innovation

Joachim Henkel () and Eric von Hippel

No 4327-03, Working papers from Massachusetts Institute of Technology (MIT), Sloan School of Management

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

Keywords: User Innovation; Product Diversity; Social Welfare; Inefficiencies (search for similar items in EconPapers)
Date: 2003-08-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/1721.1/3541 (application/pdf)

Related works:
Journal Article: Welfare Implications of User Innovation (2005)
Working Paper: Welfare Implications of User Innovation (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mit:sloanp:3541

Ordering information: This working paper can be ordered from
MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Access Statistics for this paper

More papers in Working papers from Massachusetts Institute of Technology (MIT), Sloan School of Management MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA. Contact information at EDIRC.
Bibliographic data for series maintained by None ( this e-mail address is bad, please contact ).