Asset-based model of innovation: Governance structure and the coevolution of complementary and innovation assets

Abstract This paper develops an asset-based dynamic model of innovation that links governance structure to the co-evolution of complementary and innovation assets. By representing these assets as interdependent dynamic stocks, the framework provides a formal account of how ownership and appropriation choices may affect the rate and direction of capability accumulation. Governance influences innovation not only through incentive alignment but by altering two structural parameters—an inhibitory effect that stabilizes complementary assets and an absorptive effect that enhances innovation productivity. The model highlights four main implications: high appropriation may induce technological lock-in; moderate openness allows innovation assets to cross a threshold that activates cross-domain spillovers; intermediate governance configurations may support higher long-run performance under certain conditions; and small governance adjustments may generate threshold-driven shifts in technological trajectories. These results integrate core mechanisms from transaction-cost economics, evolutionary theory, and dynamic capabilities by showing how technological trajectories emerge from the dynamic interaction of asset stocks. The model is broadly consistent with empirical patterns in which firms combining selective openness with targeted control outperform organizations that rely on extreme integration or extreme openness. The framework provides a tractable basis for analyzing how governance structures shape long-run technological change and offers several avenues for theoretical and empirical extension.