Market Failure in the Diffusion of User Innovations: The Case of 'Off-Label' Innovations by Medical Clinicians
Eric A. Von Hippel
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Harold J. DeMonaco
Harvard University - Massachusetts General Hospital; Massachusetts Institute of Technology (MIT) - Sloan School of Management
June 6, 2013
User innovators develop innovations in order to use them. For this reason, the benefits that others might obtain from adopting user innovations will be at least partially an externality for innovating users. This circumstance creates the possibility of a market failure. An innovators' investment in diffusion can lower adoption costs for many. However, as user innovators may have no or "too low" incentives to invest for this purpose, diffusion of user innovations may be not optimal from a social welfare perspective.
In this paper, we conduct a first empirical exploration of the possible under-diffusion of user-developed innovations due to inadequate incentives. We survey medical clinician’s incentives to diffuse information regarding novel "off-label" applications for approved drugs and medical devices that they developed for use in their own medical practices. We find that there is indeed a mismatch between the costs the clinicians must incur to widely diffuse their innovations and their incentives to do so – resulting in under-diffusion of this type of innovation from the social welfare perspective. We consider how this problem of under-diffusion could be addressed by reductions in user-innovator’s diffusion costs and/or increases in their benefits from diffusion.
Number of Pages in PDF File: 33
Keywords: user innovation, diffusionworking papers series
Date posted: June 8, 2013 ; Last revised: September 18, 2013
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