Uncovering the dark side of failure tolerance: How failure-tolerance policy shapes collaborative innovation networks

Abstract

Collaborative innovation networks (CINs) are critical for innovation in dynamic emerging markets like China yet failures in such networks are quite common. While recent research has highlighted the beneficial role of failure tolerance for better organizational learning and innovation performance, it has overlooked how external government policies shaping failure tolerance affect innovation networks. This study addresses this gap by examining China's Fault-Tolerance and Error-Correction (FTEC) policy, investigating its impact on CINs' formation and evolution among state-owned enterprises (SOEs). Employing Exponential Random Graph Models (ERGMs) on 15,225 collaborative patents, we uncover paradoxical effects: while FTEC policy enhances repeated collaborations among existing partners, it diminishes the formation of new ties, leading to policy-induced “lock-in” effects and path-dependent network structures. Our findings reveal that FTEC-adopting SOEs' preference for deepening established partnerships is amplified by longer policy implementation durations. Additionally, firms with shared FTEC adoption status or similar policy tenures form distinct collaborative clusters, highlighting the role of policy homophily in reinforcing network closure. These results challenge the assumption of unidirectional benefits from failure-tolerance policies, demonstrating their dual impact: fostering short-term collaborative stability while constraining long-term network adaptability.