Incentives for Collective Innovation

TL;DR

This paper models how agents' hidden efforts in shared technological innovation evolve over time, revealing conditions under which effort and payoffs increase when agents can discard innovations, with implications for collective progress.

Contribution

It characterizes the unique symmetric Markov Perfect Equilibrium in a shared innovation setting, highlighting the effects of innovation disposal on effort and payoffs.

Findings

Effort may decrease after an innovation with many agents.

Allowing innovation disposal increases effort and payoffs.

Ex-ante payoffs are higher with disposal, surpassing equilibria without disposal.

Abstract

Agents exert hidden effort to produce randomly-sized innovations in a technology they share. Flow payoffs grow as the technology develops, but so does the marginal cost of effort. I characterise the unique symmetric MPE with the quality of the technology as the state variable. In this equilibrium, continuation payoffs may fall after an innovation. I show that this occurs (with positive probability) if the number of agents is sufficiently large. Allowing agents to discard innovations induces higher effort at all states in the symmetric MPE (which remains unique). Ex-ante payoffs are higher as well and, under natural conditions, they exceed those of all equilibria without disposal.