The costs of collaborative innovation

Abstract Collaborations between actors from different sectors (governments, firms, nonprofit organizations, universities, and other societal groups) have been promoted or mandated with increasing frequency to spur more innovative activities. This article argues that there is an essential gap in evaluating the issues of these collaborative arrangements on innovation and a need to theorize the costs of these arrangements systematically. This article identifies three implicit assumptions in current research that prevent a sound analysis of the costs of collaborative innovation and advances a new cost theory based on the integration of studies from several research fields and explanations provided by three main economic theories: transaction cost economics, game theory, and the knowledge-based view. In particular, four overarching factors are posited to impact the effectiveness of collaboration for innovation: governance (the number of collaborators and the hierarchical relationships among them); compactness (the degree of relationship formality that binds collaborators together); reliability (the quality of the relationships); and institutionalization (the extent to which the relationships have been pre-established by practice). We discuss the importance of leveraging these factors to determine an optimal governance structure that allows collaborating actors to minimize transaction, cooperation, and knowledge costs, and to reward participants proportionally to the cost they bear, in order to foster conditions of reciprocity, fair rates of exchange, and distributive justice.