63 Pages Posted: 11 Jan 2017 Last revised: 16 Jun 2020
Date Written: January 1, 2017
Innovation is key to economic and social progress. Most innovation happens in companies, and most innovation scholars assume that market forces will lead companies to provide appropriate incentives--in the form of money and other perks--to their employees to encourage them to innovate at optimal levels.
But this assumption about company behavior is almost certainly wrong. The truth is that different companies treat their employees very differently. Google offers free massages, while Amazon allegedly punishes people for taking sick leave. Genentech develops “cultural initiatives” that emphasize employees’ shared goals, while Intermex fires people for uninstalling software that tracks their physical location 24/7.
If we assume that not all approaches to employee motivation are created equal when it comes to generating innovation, we can conclude that at least some, and perhaps many, companies are innovating at sub-optimal levels. This is costly for society.
It is therefore critical from an innovation policy perspective to figure out what works and what doesn’t. What kinds of environments, incentives, and managerial behaviors promote workplace creativity and innovation? And if we know what works, how can we make sure that companies are adopting effective approaches?
This Article tackles these questions. Drawing on empirical findings from psychology and organizational behavior, it identifies general principles that work to promote creativity in the workplace. The fact that many financially successful companies have failed to adopt these principles points to market failure, not market success, a conclusion bolstered by this Article's finding that several predicates of market failure exist in the employee creativity context.
Having undercut the conventional wisdom about private ordering, this Article goes on to explore what can be done to correct the market failure in employee innovation and ensure that more employees receive the right incentives. Here, behavioral law and economics offers a solution: debiasing. Debiasing uses interventions to overcome cognitive biases — in this case, on the part of company decision-makers. Changes to intellectual property law, employment law, and the implementation of signaling mechanisms like metrics and certification will debias company decision-makers and address the weaknesses of private ordering while maintaining its benefits. This will ensure that employees — the primary drivers of innovation today — receive the incentives they need to innovate at optimal levels.
Keywords: Innovation, Intellectual Property, Patent, Copyright, Entrepreneurship, Behavioral Law and Economics, Employment Law, Metrics, Psychology, Organizational Behavior
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