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This chapter introduces the concept of “free innovation,” which entails innovations developed and given away by consumers as a “free good,” with resulting improvements in social welfare. It illustrates how free innovation works within the broader scope of national economic development and how free innovation works vis-à-vis the traditional producer innovation paradigm. The chapter compares and contrasts free innovation and the producer innovation paradigm, in the process illustrating how the creation of a free innovation paradigm can both challenge and complement the traditional producer innovation paradigm. The free innovation paradigm here is meant to guide emerging research into free innovation practices and policies through the use of an underlying unified structure. The chapter then closes with a summary of the free innovation paradigm theory as well as some related concepts.

This chapter suggests several ways to make progress in free innovation research, policymaking, and practice. It sets expectations for the role the free innovation paradigm might play in these efforts; compares and contrasts the research lenses offered by free innovation, user innovation, peer production, and open innovation; and proposes steps to improve the measurement of free innovation. Next the chapter suggests research steps for incorporating free innovation into innovation theory and policymaking. Finally, this chapter looks at how the free innovation paradigm can help us to understand the economics of household sector creative activities even beyond innovation, such as “user-generated content” ranging from fan fiction to contributions to Wikipedia.

This chapter explores the conditions under which innovation pays for both free innovators and producers. Drawing heavily upon previous research, the chapter defines and describes three basic innovation modes: free innovation by single individuals, collaborative free innovation by multiple individuals, and producer innovation. It then explores the conditions under which each of these modes is “viable”—that is, will provide a net benefit to innovators engaging in it. Building upon innovation mode viability calculations, the chapter reveals that continuing improvements to free innovators' design tools and communication capabilities are making free innovation viable for an increasing range of innovation opportunities. As a result, the chapter concludes that free innovation will steadily grow in importance relative to producer innovation.

This chapter explains the value of a division of innovative labor between free innovators and producer innovators. As previous studies show, both social welfare and producer profits very generally increase if producers avoid developing types of innovations that free innovators already make available “for free.” Instead, producers should learn to focus on developing innovations that complement free innovation designs rather than substitute for them. The chapter reviews four basic interactions between the free and producer innovation paradigms, explaining the relationships among these interactions and the effects found on both producers' profits and social welfare. The chapter goes on to show that, under some conditions, producers can profit by actually subsidizing free innovation.

This chapter shows that free innovation extends well beyond product innovation—the type of innovation focused upon by almost all studies of household sector innovation to date. It reviews field-specific empirical studies that find significant levels of free innovation present in services, processes, marketing methods, and new organizational methods. The chapter also discusses illustrative examples of the sources of innovation across five innovation categories used in official Organisation for Economic Co-operation and Development (OECD) government statistics. Thus, the chapter argues that the scope of free innovation in the household sector is indeed broad—and perhaps as broad as that of producer innovation with respect to products, services, and processes of interest to consumers.

This chapter looks at how both free innovators and commercial project sponsors are increasingly competing to “tighten the loop” between themselves and free innovators to obtain a larger share of voluntary and unpaid design efforts. Crowdsourcing calls by both free innovators and producers asking for assistance on innovation projects from the household sector are on the rise. Producers are also learning to support free innovators, seeking to channel their work into privately profitable directions. Hence, the chapter explains how producers are learning to support free innovators in ways that benefit themselves but not their rivals. It then explores how lower-cost pathways to commercialization are becoming available to household sector innovators. Finally, the chapter discusses how, via crowdsourcing, free innovators and producers are both learning to more effectively recruit free innovation labor from the household sector.

This chapter identifies personality traits significantly associated with successful free innovation in the household sector. It draws upon a 2016 study conducted among a sample of 546 German consumers, focusing on three successive innovation process stages: having an idea for an innovation for personal use; building a prototype for personal use; and diffusing the innovation either by free, peer-to-peer transfer or to a producer firm. In addition, this study uses the five-factor model of personality (also known as the Big Five model) consisting of five underlying traits in personality that display minimal overlap: openness, extraversion, conscientiousness, agreeableness, and neuroticism. Based on this study, the chapter suggests two possible ways to increase the amount of successful free innovation.