Working Paper: CEPR ID: DP4116
Authors: Gilles Saint-Paul
Abstract: How can we explain the success of cooperative networks of firms that share innovations, such as Silicon Valley or the Open Source community? This Paper shows that if innovations are cumulative, making an invention publicly available to a network of firms may be valuable if the firm expects to benefit from future improvements made by other firms. A cooperative equilibrium where all innovations are made public is shown to exist under certain conditions. Furthermore, such equilibrium does not rest on punishment strategies being followed after a deviation: it is optimal not to deviate regardless of other firm?s actions following a deviation. A cooperative equilibrium is more likely to arise, the greater the number of firms in the network. When R&D effort is endogenous, cooperative equilibria are associated with strategic complementarities between firms? research effort, which may lead to multiple equilibria.
Keywords: cooperation; cumulative knowledge; growth; information sharing; innovation; open source; R&D; Silicon Valley; technical progress
JEL Codes: O30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Making an innovation public (O36) | Increased innovation speed (O35) |
| Increased innovation speed (O35) | Cumulative knowledge growth (O41) |
| Number of firms in the network (D85) | Likelihood of achieving a cooperative equilibrium (C72) |
| Cooperative equilibrium (C71) | Faster growth (O49) |