Abstract
This paper reports experimental results on open innovation in which free-riding, efficiency and spillover depend on the ability to affect the number of innovation contributors, and the modularity of the innovation task. This paper provides a tractable laboratory setting that relaxes the restrictive assumption of the theoretical literature that costs of development are independent across individuals. We have induced more distributed problem solving and spillover of knowledge when the process is more non-modular. When efficiency is measured as the percentage of profits made over maximum profits, small groups were more efficient than large groups in the non-modular production environment and efficiency was higher in the modular production environment irrespective of group size. Significantly, there was a higher percentage of spillover in the non-modular production environment, especially for large groups.
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