nep-ino New Economics Papers
on Innovation
Issue of 2005‒02‒27
twelve papers chosen by
Koen Frenken
Universiteit Utrecht

  1. The Sources of Quality in the Pharmaceutical Industry By Enrique Yacuzzi; Fernando Martín; Gabriel Vignola; Verónica Mayochi; Dante Tollio
  2. Perfectly Competitive Innovation (Growth) By Michele Boldrin; David K Levine
  3. A ‘putty-practically-clay’ vintage model with R&D driven biases in energy-saving technical change By Zon,Adriaan,van; Lontzek,Thomas
  4. Useful Knowledge as an Evolving System: the view from Economic History. By J. Mokyr
  5. Do Out-In M&As Bring Higher TFP to Japan? An Empirical Analysis Based on Micro-data on Japanese Manufacturing Firms By Kyoji Fukao; Keiko Ito; Hyeog Ug Kwon
  6. The Utility Standard and the Patentability of Intermediate Technology By Reiko Aoki; Sadao Nagaoka
  7. Profiting from innovative user communities: How firms organize the production of user modifications in the computer games industry By Lars Bo Jeppesen
  8. The Management of Projects and Product Experimentation: Lessons from the Entertainment Industries By Mark Lorenzen & Lars Frederiksen
  9. Lessons from the Technology of Skill Formation By James J. Heckman
  10. Knowledge, networks of cities and growth in regional urban systems By Joan Trullén Thomàs; Rafel Boix Domenech
  11. Technical Change and the Wage Structure During the Second Industrial Revolution: Evidence from the Merchant Marine, 1865-1912 By Chinhui Juhn; Aimee Chin; Peter Thompson
  12. Episodes of Collective Invention By Peter B. Meyer

  1. By: Enrique Yacuzzi; Fernando Martín; Gabriel Vignola; Verónica Mayochi; Dante Tollio
    Abstract: This paper analyzes the sources of quality of a pharmaceutical product. After identifying eight quality dimensions, a framework of hypothetical sources that contribute the most to shape those dimensions is established. The framework, based on Garvin’s pioneering work, is applied to case studies of laboratories operating in Argentina. Framework relevance is considered using correlation analysis. Laboratories are ranked through expert opinion by the quality of its products using the eight dimensions mentioned above; it is observed that there is no perfect parallelism in ranking along all dimensions, possibly revealing different managerial priorities and uses of resources among laboratories, as well as different sources of quality and different business strategies. Correlation analysis also suggests that the study of a pharmaceutical product is a complex task when a modern concept of quality is considered. Once the existence of different quality dimensions is accepted, the following two questions are investigated: (1) Are there specific sources of quality that support some dimensions (and not others) and that are based on identifiable organizational aspects or specific technologies? (2) What are the generic sources of quality (affecting all dimensions) and in what way do they contribute to improve performance or highlight quality dimensions? It is assumed as a starting point that among the sources of quality there are generic sources, affecting all dimensions, and specific sources, which affect only some dimensions. In concrete cases, specific quality sources are identified, although the search for specific quality sources for each dimension is not conclusive. The study of generic quality sources, however, suggests that corporate systems, corporate culture, and management policies contribute to incorporate quality in a product. Thus quality results from the interaction between generic and specific sources. In the final part of the paper, recommendations for academics and industrialists are provided, as well as some conclusions.
    Keywords: Pharmaceutical product, Garvin’s quality dimensions, quality sources, pharmaceutical laboratories in Argentina, corporate systems, corporate culture.
    JEL: M10 M11 M14
    Date: 2004–12
  2. By: Michele Boldrin; David K Levine
    Date: 2005–02–22
  3. By: Zon,Adriaan,van; Lontzek,Thomas (MERIT)
    Abstract: This paper deals with the problem of tackling the adverse effect of output growth on environmental quality. For this purpose we use an intermediate sector that builds ‘putty-practically-clay’ capital consisting of an energy-raw capital amalgam used for final goods production. The putty-practically-clay model is a strongly simplified version of a full putty-clay model, that mimics all the relevant behaviour of a full putty-clay model, but that does not entail the administrative hassle of a full putty-clay vintage model. In addition to this, we introduce an R&D sector that develops renewable- and conventional energy-based technologies. The allocation of R&D activities over these two uses of R&D gives rise to an induced bias in technical change very much as in Kennedy (1964). In the context of our model, this implies that technological progress is primarily driven by the desire to counteract the upward pressure on production cost implied by a continuing price increase of conventional energy resources. Hotelling’s rule suggests that this price rise is unavoidable in the face of the ongoing depletion of conventional energy reserves. By means of some illustrative model simulations we study the effects of energy policy on the dynamics of the model for alternative policy options aimed at achieving GHG emission reductions. We identify the conditions under which energy policy might partly backfire and present some non-standard policy implications.
    Keywords: macroeconomics ;
    Date: 2005
  4. By: J. Mokyr
    Abstract: The process of modern growth is different from the kind of growth experienced in Europe and the Orient before 1800 in that it is sustained. Whereas in the premodern past, growth spurts would always run into negative feedback, no such ceiling seems to have been limiting the economic expansion of the past two centuries. The enigma of modern growth has led to a great deal of modeling and speculation amongst economists interested in the topic. One important strand in the literature has been that the Malthusian models that provided much of the negative feedback before 1800, have been short-circuited by the desire and ability of a growing number of individuals to reduce their fertility. Another has been institutional change, which has reduced opportunistic behavior and uncertainty. What has not been stressed enough is that the new technology was made possible by ever increasing "useful knowledge" as Kuznets called it. The sources of this growth in knowledge, surprisingly, have not been fully analyzed. How does "useful knowledge" emerge and develop? Why does it occur in one society and not another, at one time, and why does it take the form it does? This paper examines the details of how new knowledge is created by various combinations of luck, trial and error, inference, and experiment. To analyze the history of useful knowledge, an evolutionary framework to the economic history of useful knowledge is employed.
  5. By: Kyoji Fukao; Keiko Ito; Hyeog Ug Kwon
    Abstract: This paper compares the performance of foreign-owned and domestically-owned firms, using micro data on Japanese firms in the manufacturing sector for the period 1994-2000. The overall comparison between foreign-owned and Japanese companies shows that foreign-owned companies enjoyed 5% higher TFP as well as higher earnings and returns on capital. They also displayed a higher capital-labor ratio and higher R&D intensity. Reflecting their higher TFP and labor-saving production patterns, foreign-owned companies showed higher labor productivity and wage rates as well. By estimating Probit models, we found that foreign firms acquire Japanese firms with higher TFP levels and higher profit rates. In contrast, in-in M&As seem to have the characteristics of rescue missions. Small firms with a higher total liability/total asset ratio tend to be chosen as targets of in-in M&As. We also estimated the dynamic effects of M&As on target firms. The results indicate that out-in M&As improve target firms' TFP level and current profit/sales ratio. Compared with in-in M&As, out-in M&As bring a larger and quicker improvement in TFP and the profit rate but no increase in target firms' employment two years after the acquisition.
    Date: 2005–02
  6. By: Reiko Aoki; Sadao Nagaoka
    Abstract: We explore the consequences of the utility requirement on speed of innovation and welfare. A weak utility requirement means that an intermediate technology with no immediate application or commercial value is patentable. Using a model of two stage innovation with free entry and trade secrecy, we identify cases when patentability is beneficial to society. Although a firm may undertake basic research protected by trade secrecy, patentability is still desirable when spillover is high and innovation costs are high. However, patentability becomes less desirable as basic research costs decrease. We also show that high value of final technology by itself does not favor non-patentability and identify condition when it does.
    Keywords: utility requirement, basic research, patentability, innovation
    JEL: O34 O31
  7. By: Lars Bo Jeppesen
    Abstract: Modding – the modification of existing products by consumers – is increasingly exploited by manufacturers to enhance product development and sales. In the computer games industry modding has evolved into a development model in which users act as unpaid “complementors” to manufacturers’ product platforms. This article explains how manufacturers can profit from their abilities to organize and facilitate a process of innovation by user communities and capture the value of the innovations produced in such communities. When managed strategically, two distinct, but not mutually exclusive business models appear from the production of user complements: firstly, a manufacturer can let the (free) user complements “drift” in the user communities, where they increase the value to consumers of owning the given platform and thus can be expected to generate increased platform sales, and secondly, a manufacturer can incorporate and commercialize the best complements found in the user communities.
    Keywords: Innovation, modding, user communities, software platform, business model
    JEL: L21 L23 O31 O32
  8. By: Mark Lorenzen & Lars Frederiksen
    Abstract: The paper analyses management of product innovation in project-based industries, offering a view on management not only of firms, but also of markets. It first argues that projects are prominent in industries where the nature of consumer demand means that product innovation takes place as experimentation. Then, the paper argues that if skills needed for projects are very diverse and projects are complex, there are few internal managerial economies of projects, and the scope for management then transcends the boundaries of firms. In these cases, markets become organized in combinations of people, contracts, and other institutions, in order to facilitate the coordination of market-based projects. While contracts play a role, a continuous, active role of knowledgeable managers (leaders and boundary spanners) is also often necessary. Such managers ? and thus (core parts of) whole industries ? are embedded in project ecologies at particular places, which is why we see geographical clusters in many project-based industries. The paper is mainly conceptual, but develops its argument by drawing examples from the Entertainment industries throughout.
    Keywords: Project organization, product innovation, portfolio management of projects, entertainment
    JEL: L22 O31 L82
  9. By: James J. Heckman
    Abstract: This paper discusses recent advances in our understanding of differences in human abilities and skills, their sources, and their evolution over the lifecycle.
    JEL: J24 J31 I20
    Date: 2005–02
  10. By: Joan Trullén Thomàs (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Rafel Boix Domenech (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: The objective of this paper is to measure the impact of different kinds of knowledge and external economies on urban growth in an intraregional context. The main hypothesis is that knowledge leads to growth, and that this knowledge is related to the existence of agglomeration and network externalities in cities. We develop a three-stage methodology: first, we measure the amount and growth of knowledge in cities using the OCDE (2003) classification and employment data; second, we identify the spatial structure of the area of analysis (networks of cities); third, we combine the Glaeser - Henderson - De Lucio models with spatial econometric specifications in order to contrast the existence of spatially static (agglomeration) and spatially dynamic (network) external economies in an urban growth model. Results suggest that higher growth rates are associated to higher levels of technology and knowledge. The growth of the different kinds of knowledge is related to local and spatial factors (agglomeration and network externalities) and each knowledge intensity shows a particular response to these factors. These results have implications for policy design, since we can forecast and intervene on local knowledge development paths.
    Keywords: Knowledge city, networks of cities, urban growth, external economies, spatial econometrics.
    JEL: R11 R12 O3
    Date: 2005–01
  11. By: Chinhui Juhn (Department of Economics, University of Houston); Aimee Chin (Department of Economics, University of Houston); Peter Thompson (Department of Economics, Florida International University)
    Abstract: Using a large, individual-level wage data set, we examine the impact of a major technological innovation—the steam engine—on skill demand and the wage structure in the merchant shipping industry. We find that the technical change created a new demand for skilled workers, the engineers, while destroying demand for workers with skills relevant only to sail. It had a deskilling effect on production work—able-bodied seamen (essentially, artisans) were replaced by unskilled engine room operatives. On the other hand, mates and able-bodied seamen employed on steam earned a premium relative to their counterparts on sail. A wholesale switch from sail to steam would increase the 90/10 wage ratio by 40%, with most of the rise in inequality coming from the creation of the engineer occupation.
    JEL: I20 J24 J31
    Date: 2004–08
  12. By: Peter B. Meyer (U.S. Bureau of Labor Statistics)
    Abstract: The process of developing technology through open discussion has been called collective invention. Open source software projects have this form. This paper documents two earlier episodes of collective invention and proposes a general model based on search theory. One episode was the development of mass production steel in the U.S. (1866-1885), and the second with early personal computers (1975-1985). Technical people openly discussed and shared these developing technologies between firms. Collective invention episodes begin with an invention or a change in legal restrictions. Hobbyists and startup firms experiment with practical methods of production and share their results through a social network whose members gradually form a new industry. The network itself may disappear if the firms then keep their R&D secret. A model of an innovation search can describe this process if it is expanded to include independent hobbyists and consultants as well as profit-seeking firms.
    Keywords: technological change, uncertainty, search, innovation
    JEL: O31 O34 N10 D83
    Date: 2003–08

This nep-ino issue is ©2005 by Koen Frenken. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.