Abstract

http://ssrn.com/abstract=469040
 
 

References (68)



 
 

Citations (18)



 


 



Welfare Implications of User Innovation


Joachim Henkel


TUM School of Management - Technische Universität München (TUM); Centre for Economic Policy Research (CEPR)

Eric A. Von Hippel


Massachusetts Institute of Technology (MIT) - Sloan School of Management

September 2003

CEPR Discussion Paper No. 4063

Abstract:     
The literature on new goods and social welfare generally assumes that manufacturers develop innovations. 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.

Number of Pages in PDF File: 22

Keywords: User innovation, product diversity, social welfare, inefficiencies

JEL Classification: D62, O31, O38

working papers series


Date posted: November 14, 2003  

Suggested Citation

Henkel, Joachim and von Hippel, Eric A., Welfare Implications of User Innovation (September 2003). CEPR Discussion Paper No. 4063. Available at SSRN: http://ssrn.com/abstract=469040

Contact Information

Joachim Henkel
TUM School of Management - Technische Universität München (TUM) ( email )
Arcisstr. 21
Munich, D-80333
Germany
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Eric Von Hippel (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
E62-455
Cambridge, MA 02142
United States
617-253-7155 (Phone)
617-253-2660 (Fax)
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References:  68
Citations:  18

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