Incentivizing Tacit Knowledge Sharing in Competitive and Heterogeneous Environments

Organizations, recognizing tacit knowledge as a key driver of innovation, often create incentives to foster its sharing among members, especially in competitive environments. The challenge lies in the diverse nature of this tacit knowledge and members' varying capabilities, which complicates the design of effective incentives. Acknowledging that innovation value stems from both tacit knowledge and the dynamic efforts of involved parties, we investigate the optimal incentive mechanisms to facilitate the dissemination of tacit knowledge through a differential game model. This model takes into account the influences of competition and member diversity. Our analysis contrasts two incentive approaches to determine the superior strategy under different conditions. The findings suggest that when members' average capability is high, the variance in their capacities can be overlooked in designing incentives. In addition, in heterogeneous settings, organizations tailor incentives to members' abilities. Our results also indicate that heightened competition diminishes members' effort levels and those of the organization, while necessitating increased incentivization. Intriguingly, we discover that organizations adopt a mixed incentive approach when accounting for member heterogeneity.