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«Paper presented to the EPIP Conference Lund, Sweden September 2007 ABSTRACT This paper investigates how “leisure time” invention contributes to ...»

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APPROPRIATING VALUE FROM

“LEISURE TIME” INVENTION

Lee N. Davis1

Department of Innovation and Organizational Economics

Copenhagen Business School

Jerome Davis2

Department of Political Science

Dalhousie University

Paper presented to the EPIP Conference

Lund, Sweden

September 2007

ABSTRACT

This paper investigates how “leisure time” invention contributes to firm innovation. We seek to answer three main questions: (1) How can leisure time invention create value? (2) What motivates leisure time invention? (3) How can firms utilize leisure time invention? First, we examine the degree to which leisure time invention is a market or non-market activity, and propose a simple model connecting the knowledge generated in leisure time invention with the knowledge generated by the firm. Second, drawing on the distinction between direct and indirect utility goods, we contend that there is a higher proportion of direct utility involved in the performance of leisure time invention than is the case for paid inventive activities. Such inventors may also try to achieve material rewards for their efforts – but often, they do not.

Third, because leisure time invention is highly motivated by direct utility, attempts to realize its commercial value can pose special challenges. We analyze what contractual arrangements can be implemented to govern the relationship between a firm and an employee who has made an invention of potential interest to the firm in her leisure time. We conclude by discussing some of the implications of the analysis.

Tel: +45 3815 2547, Fax: +45 3815 2540, e-mail: ld.ino@cbs.dk Tel: 902 494 7098, Fax (+1) 902 494 3825, e-mail: Jerome.Davis@Dal.Ca

APPROPRIATING VALUE FROM

“LEISURE TIME” INVENTION

1. Introduction In the film October Sky, a Hollywood version of a true story, four high school students in a West Virginia coal mining town, inspired by the 1957 Russian launching of Sputnik, experiment with their own home made rockets. Made aware of a university fellowship prize offered at a national high school fair in Chicago, they develop an entry to the fair and win the prize. This leads to university fellowships for all four, their escape from a future in the coal mines. While the details of their prize submission are not revealed – Hollywood not being inclined to explain technicalities in films involving scientific achievement – this story raises an important point. Sputnik inspired a rash of rocket building activities among the U.S. teen population, including one of the authors of this paper. None of this inventive activity, as far as the authors are aware, was entered into the U.S. national accounts. Yet in many instances it has inspired career choices, and provided the impetus upon which many scientists were recruited into the U.S. National Aeronautics and Space Administration.

This paper seeks to investigate, in an exploratory manner, how individuals working in their leisure time can contribute to the development of new products, processes, and services – a phenomenon we will call “leisure time” invention. While much has been written about the economic value of unpaid work – a category which includes subsistence production, housework, work in the informal sector of the economy such as industrial piece work, and volunteer work (Beneria, 1999) – none of these scholars include inventive activity in their analyses. Yet there is a great deal of anecdotal information about de facto leisure time invention. Examples include a schoolgirl designing a weblog, a father building a remotecontrolled toy boat for his child, or a computer nerd helping to develop the Linux operating system.

We were intrigued to look into what motivates people to devote their free time to inventing new products of this type – products that probably will never earn them any money, but that they still find rewarding to invent, and products that could well contribute in ways not yet well understood to innovating firms – and, by implication, to the economy as a whole. We believe that leisure time inventive activity does have important economic value, even if it cannot directly be measured in terms of paid work (present or anticipated).

There has been considerable interest in the literature in the various manifestations of leisure time invention. Scholars have investigated the dynamics of open source software (e.g. Lerner and Tirole, 2005, Weber, 2004), user innovation (e.g. von Hippel, 2005, Harhoff et al., 2003, Franke and Shah, 2003), customer creativity (Berthon et al, 1999), “crowd-sourcing” (Howe, 2006, Lakhani et al., 2007), and prize contests like the X-prize (National Academy of Sciences, 2000, Davis and Davis, 2006). But these studies investigate leisure time invention from the demand side. Our interest here lies mainly in the supply side, including the jointness between the leisure time invention and firm inventive activities. Other forms of leisure-time invention have received little or no academic attention. For example, many individuals invent games which they share with friends and family. But because these games are not sold on the market, they remain invisible to the public at large.

Our essay is structured around three main questions. In Section 2, we ask: How can leisure time invention create value? We examine the degree to which leisure time invention is a market or non-market activity, and propose a simple model connecting the knowledge generated in leisure time invention with the knowledge generated by the firm.. In Section 3, we ask: What motivates leisure time invention? Drawing on the distinction between direct and indirect utility goods (Hawrylshyn, 1979), we contend that there is a higher proportion of direct utility involved in the performance of leisure time invention than is the case for paid inventive activities. In other words, people enjoy tinkering, and directly consume the benefits from it. Leisure time inventors may also try to achieve material rewards for their efforts – but often, they do not. Because leisure time invention is highly motivated by direct utility, attempts by firms to realize its commercial value can pose special challenges. Section 4 analyzes what contractual arrangements can be implemented to govern the relationship between a firm and an employee who has made an invention of potential interest to the firm in her leisure time. We conclude by discussing some of the implications of the analysis.





2. How can leisure time invention create value?

Leisure time invention may be defined as inventive activity that takes place outside of the formal labor market, efforts for which the inventor gets neither a wage nor a salary. We begin, in Section 2.1, by presenting the concept informally, and illustrating it by the story of the Wright brothers. In Section 2.2, we formalize the definition by introducing a simple model, variations of which cover the main aspects of leisure time invention. We start by considering the case of an inventor who works both at her place of employment (“marketbased”) and in her leisure time at home. In this case, her leisure time activity represents a continuation of her inventive efforts at work, but she is not paid for it. We then refine the

model to include four further cases:

• Where the inventor is working on something else in her leisure time in which the firm is not (necessarily) interested

• Where two employees in a single firm pursue two types of inventions in their leisure time and utilize each other’s knowledge in their pursuit

• Where a firm broadcasts a particular need over the Internet and non-employees compete to fill it, and

• Where employees from different firms pool their knowledge sets in their leisure time to achieve successful invention.

2.1. Invention as a “market” and “non-market” activity

In this paper, we argue that inventive effort can be divided between that effort for which the inventor is paid by an employer (market invention), and that effort which the inventor, individually or as part of a larger group of like-minded agents, makes in her (their) leisure time. Leisure time invention, like a hobby, may be motivated by purely personal enjoyment, and is thus a “non-market” activity. Hawrylshyn (1977) discusses the general problems of measuring non-market activities, without specifically mentioning invention. If we substitute the term “inventive activity” for his term “economic activity,” we can paraphrase

Hawrylshyn’s analysis of non-market activities (1977: 79-80) as follows:

- Proposition One: Inventive activity comprises only a part of economic activity, but that part is significant enough to merit the attention of scholars.

- Proposition Two: Market activities comprise only a part of economic activity. The economic value of many activities fall outside the market, here most notably household work, but also unpaid inventive work done in leisure time.

- Proposition Three: Market related inventive activity therefore makes up only a portion of a total societal inventive economic activity.

But the notion of leisure time invention is complex. The leisure time inventor’s intent might instead be to sell or license the rights to her invention to another party. In this case, the inventor is still utilizing her leisure time but on a “market” basis.3 As we will note, a major challenge for society is to “incentivise” the field of leisure time invention so that these inventions can contribute to the commercialization of new products or services.

Invention refers to the conceptualization and further development of a novel idea. Innovation refers to the commercialization of the invention in the form of a new product, process or service. In this paper, we focus on the invention process. Inventive activity is seen as the practical implementation of a new idea derived from new combinations of knowledge based on “prior art” and “know-how.” By “prior” is meant preceding. “Art” is defined in terms of learning. “Know-how” refers to procedural knowledge: the knowledge of how to perform some task.

The story of the invention of the first airplane provides a striking illustration of the practical implementation of new ideas based on combinations of knowledge involving prior art, and the use of procedural knowledge or know-how. The airplane was developed in the early twentieth century by two brothers, Wilbur and Orville Wright. They were untutored in formal To take a parallel, a professor might buy a house, use her leisure time to modernize the house, and then ‘flip’ it on the market. The motivation here is market-based, while her activity is leisure time.

engineering skills. Their income came from a very successful printing/bicycle enterprise in Youngstown, Ohio, which alone financed their leisure time activities.4 An airplane is clearly quite different from a bicycle, but its invention in fact built on many of the brothers’ workrelated skills. This story demonstrates how inventors can be motivated by both direct and indirect utility, providing a good example of the synergies characteristic of our joint firm and leisure time invention model. (Much of the following can be found in Heinsohn, 2007, but see also U.S. Centennial of Flight Commission, 2004; and Smithsonian Institution, National Air and Space Museum, 2004).

The Wright brothers’ invention was to a large degree based on knowledge acquired from others. Otto Lilienthal, a German engineer, had discovered that to give a wing lift, its leading edge had to be curved upward (cambered wing). His experiences with hang gliding, published in magazine articles, inspired the Wright brothers. Octave Chanute, an American engineer, solved the problem of wing structural soundness. He found that by having double decked wings with a Pratt truss (connected by vertical struts for compression, and diagonal wires for tension), sizable wings could be constructed that would not fall apart under pressure. Both the gasoline engine and the propeller had already been invented as well, but would have to be modified to provide air power.

Know-how acquired through experimentation and observation was, in many ways, even more important. For example, the brothers’ use of the Lilienthal designs (prior art) for optimum wing camber led to some gliding disasters. These were rectified after the brothers had tested more than 200 model wings in their primitive wind tunnel (the first of its kind in the world).

This enabled them to design wings better able to solve the problems of lift and drag.

A major problem concerned executing controlled turns in the air. The airplane had to both turn and at the same time maintain lift under the wings. The two brothers noted how vultures accomplished this manoeuvre by banking in their turns, twisting one wing upward and the other downward. This knowledge, gained through observation of birds in flight, was creatively combined with their knowledge about bicycles and wire strength (light weight bicycles use many wires under tension connecting points on the wheel to tangential points on In addition to inventing the airplane, the brothers also took out patents on bicycle design. They were particularly successful in designing and marketing various forms of ultra-light bicycles.

the wheel hub), yielding new forms of know-how which aided them in designing structurally sound biplane wings. It proved critical in their development of the wing warp, and their ability to bank turns in the air. They had found that wings might be warped by applying tension to the diagonal wires of the Pratt truss.



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