Living it up at the Hotel California: Employee Mobility Barriers and Collaborativeness in Firms' Innovation

Abstract

Research has long recognized the importance of collaboration for innovation, but relatively little is known about the strategic drivers of collaborative innovation in firms. We posit that robust collaboration within firms can increase the inter-firm mobility of inventors and increase spillovers of innovative knowledge to competitors by mobile inventors. Therefore, by mitigating these value capture hazards associated with collaboration, barriers to employee mobility may induce firms to increase collaborativeness in innovation. Additionally, consistent with the mechanism underlying this proposition, we hypothesize that firms whose innovation entails more complex knowledge, which is known to impede inter-firm knowledge spillovers, will increase collaboration less when employee mobility increase. We test these hypotheses by leveraging quasi-exogenous changes in two legal mobility barriers for inventors across U.S. states, and find that higher mobility barriers are associated with greater inventor collaboration (as observed in patented innovation), and this effect is weaker for firms possessing more complex knowledge. These findings deepen our understanding of the strategic tradeoffs between value creation and value capture entailed in collaborative innovation within firms, and of human capital strategies that help to manage these tradeoffs.