Proper Incentives to Promote Information Exchange

Exchange of information is essential to the process of innovation such as product development. However, in many cases innovation fails because of a lack of knowledge sharing among parties concerned, even if parties individually have pieces of useful knowledge and skills. Besides physical factors like communication costs, the possibility of opportunistic behavior by parties like stealing ideas can discourage information exchange. This paper introduces a model to analyze incentives of information exchange. The model is a game by two players who alternately opt to offer information to the partner. It is suggested that information exchange can stop before reaching the efficient level. In order to attain the efficient information exchange, expectation of mutual benefit and absence of opportunistic motives in both players are needed. Methods for promoting information exchange include modifying payoff structure to meet the condition of information exchange. The fluidity of partnership may increase a variety of information exchange partners, but discourage building trust between partners which promotes information exchange.