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on Innovation |
| By: | Acs, Zoltán J; Audretsch, David B; Braunerhjelm, Pontus; Carlsson, Bo |
| Abstract: | The intellectual breakthrough contributed by the new growth theory was the recognition that investments in knowledge and human capital endogenously generate economic growth through the spillover of knowledge. Endogenous growth theory does not explain how or why spillovers occur. The missing link is the mechanism converting knowledge into economically relevant knowledge. This Paper develops a model that introduces a filter between knowledge and economic knowledge and identifies entrepreneurship as a mechanism that reduces the knowledge filter. A cross-country regression analysis over the period 1981-2001 provides empirical support for the model. We conclude that public policies facilitating knowledge spillovers through entrepreneurship may be an important new approach to promoting economic growth. |
| Keywords: | endogenous growth; entrepreneurship; innovation; knowledge |
| JEL: | L10 O10 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4783&r=ino |
| By: | Aghion, Philippe; Meghir, Costas; Vandenbussche, Jérôme |
| Abstract: | We examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoretical model showing that skilled labour has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skill intensive activity than imitation. Also, we provide evidence in favour of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found no positive relationship between initial schooling level and subsequent growth in rich countries. In particular, we show that in OECD economies it is crucial to isolate the two separate margins of primary/secondary and tertiary education. Interestingly, the latter type of schooling proves to be a factor of economic divergence. |
| Keywords: | convergence; economic growth; education; human capital; imitation; innovation; technological frontier; wave |
| JEL: | I20 O30 O40 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4860&r=ino |
| By: | Hoernig, Steffen |
| Abstract: | The European Union will be introducing a Europe-wide patent, the so-called Community Patent. Its aim is to foster innovative activity, but strategic effects between firms competing in R&D have not been considered in the official discourse. We show that, even if these are taken into account, the Community Patent will increase innovative activity and welfare. On the other hand, if the decision of participating in R&D is considered, then this increased R&D will be concentrated into fewer firms. Furthermore, we show that existing asymmetries between countries and firms are bound to increase. |
| Keywords: | community patent; participation in R&D; R&D race |
| JEL: | L52 O34 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4883&r=ino |
| By: | Hoppe, Heidrun C.; Ozdenoren, Emre |
| Abstract: | The paper offers a new theoretical framework to examine the role of intermediaries between creators and users of new inventions. We find that uncertainty about the profitability of investing in new inventions generates a basis for intermediation. An intermediary may provide an opportunity to economize on a critical component of efficient investment decisions - the expertise to sort `profitable' from `unprofitable' inventions. Our findings may help explain the surge in university patenting and licensing since the Bayh-Dole Act of 1980. The study also identifies several limitations to the potential efficiency of intermediation in innovation. |
| Keywords: | innovation; Intermediation; market microstructure; matching; patent licensing; uncertainty |
| JEL: | D40 D80 L12 L13 O32 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4891&r=ino |
| By: | Schivardi, Fabiano; Schneider, Martin |
| Abstract: | This paper studies the diffusion of a new technology that is brought to market while its potential is still uncertain. We consider a dynamic game in which firms improve both a new and a rival old technology while learning about the relative potential of both technologies. We use the model to understand historical evidence on diffusion and market structure. In particular, the model explains why a change in market leadership often goes along with slow diffusion. It also provides a rational explanation for observed ‘incumbent inertia’ and shows how markets can make mistakes in the selection of new technologies. |
| Keywords: | dynamic games; innovation; learning; oligopoly |
| JEL: | C63 C73 D83 L13 O31 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4925&r=ino |
| By: | Llobet, Gerard; Suárez, Javier |
| Abstract: | The protection that innovators obtain through intellectual property rights crucially depends on their incentives and ability to litigate infringers. Taking patents as a notable example, we study how the financing of legal costs can alter the incentives to litigate in defence of a patent and, thus, the prospects of infringement and the effective protection of the innovator. We compare the resort to a financier once the infringement has occurred (ex-post financing) with patent litigation insurance (PLI) as well as other ex-ante arrangements based on leverage. We show that the ex-ante arrangements can be designed (for instance, in the case of PLI, by including an appropriate deductible) so as to implement the innovator’s second-best outcome: a situation in which patent predation is deterred without inducing excessive litigation. |
| Keywords: | financial strategy; intellectual property; litigation; predation |
| JEL: | G32 O34 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4944&r=ino |
| By: | Cincera, Michele; van Pottelsberghe, Bruno; Veugelers, Reinhilde |
| Abstract: | International R&D activities have grown significantly over the last two decades. Both the number of actors involved, as well as the importance of the technological activity carried out abroad, has considerably increased. We aim to quantify the international generation of knowledge for the case of Belgium, using indicators based on EPO and USPTO patent data (1978-2001). We distinguish among Belgian applicants, affiliates of foreign firms located in Belgium as well as Belgian based firms with affiliates abroad. This approach allows improvement of existing indicators of internationalization of technology based on patent data. The results are consistent with what can be expected for a small open economy such as Belgium. A large part of patents with Belgian inventors are assigned to Belgian affiliates of foreign firms. Hence our more complete indicator of foreign ownership gives a substantially higher foreign control of Belgian inventors. Relatively more knowledge generated by Belgian inventors flows out of the country towards foreign owners of technology, than knowledge generated abroad is owned by Belgian patent applicants. But the share of foreign inventors to Belgian assigned patents is increasing considerably over time, especially in the subcategory of Belgian firms with foreign affiliates. |
| Keywords: | Belgian economy; internationalization of R&D; patent statistics |
| JEL: | F23 O30 O33 O57 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4945&r=ino |
| By: | Hvide, Hans K |
| Abstract: | Founders of new firms tend to be experienced workers pursuing opportunities related to their previous employment. The paper proposes a simple framework to study the interaction between individual workers’ entrepreneurship decision and established firms’ effort to keep their best workers and ideas. The main insights are twofold. First, taking the firm size as given, larger firms tend to have less fine-tuned wage setting and produce entrepreneurs of higher quality than smaller firms. Second, making firm size endogenous, stronger property rights protection makes the optimal firm size larger (and the average quality of entrepreneurs higher). I apply these ideas to entrepreneurs’ data from a Stanford MBA alumni survey and firm size data from the US software industry. |
| Keywords: | entrepreneurship; IPP; patents; private benefits; property rights; software; spin off; start up |
| JEL: | G39 J33 J41 J62 K00 L24 L25 M52 M54 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4979&r=ino |
| By: | Foellmi, Reto; Zweimüller, Josef |
| Abstract: | We utilize Schmookler’s (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are determined by the income distribution. We show how a change in the distribution of income affects the incentive to innovate and hence long-run growth. In general, less inequality tends to discourage the incentive to innovate, but this depends on the nature of the redistribution. |
| Keywords: | demand composition; growth; inequality; price distortion |
| JEL: | D30 D40 L16 O15 O31 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:4985&r=ino |
| By: | Kurt A. Hafner |
| Abstract: | The paper focuses on the impact of business related R&D spending on input factor productivity (IFP) using international patent applications as a technology diffusion channel. Considering the relationship between research and productivity, international patent pattern reflects the link between the source (R&D) and the use (IFP). To estimate patent related spillover effects, I use the estimation techniques developed and proposed by Kao and Chiang (1998) in order to deal with nonstationary and cointegration and to obtain reliable coefficients. I find that patent related foreign R&D spillover effects are present and that the impact on labor productivity for Non-G7 countries is higher due to foreign rather than domestic R&D activities. |
| Keywords: | Productivity, R&D, Technology Diffusion, Nonstationary Panels |
| JEL: | C12 C23 O30 O40 |
| Date: | 2005–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:got:cegedp:44&r=ino |
| By: | Gavin C. Reid; Julia A. Smith |
| Abstract: | This paper presents new empirical evidence, obtained by fieldwork methods, on investor risk-handling practice in the UK venture capital industry. Its focus is on high-technology firms and the techniques their venture capital backers use for risk management. The active areas of risk management are explored under the headings of risk premia, investment time horizons, and sensitivity analysis. As an organising framework, risk is divided into ‘agency risk’, ‘business risk’ and ‘innovation risk’. Data were gathered by working through a semi-structured interview agenda in face-to-face meetings with the top venture capital deal-makers in the UK. They were questioned specifically on how they handled risks in high-technology ventures. The interview agenda covered: risk premia, investment time horizon, sensitivity analysis, expected values, cash flow prediction, financial objectives, decision making, and qualitative appraisal. The paper draws on evidence from all eight agenda items, but focuses on the first three. This paper finds that the three categories of risk identified as important, innovation, agency and business risk, have pervasive influences on investor conduct in the UK. Their form of influence was traced under the agenda headings of risk premia, investment time horizon, and sensitivity analysis. It was found that the riskiness of investment types (e.g. seed, MBO etc) could be clearly ranked by investors. These rankings were found to be generally consistent with principles of financial economics. Investors were also asked what factors were most important to their risk appraisals, for given high technology investments. Of a wide range of factors, it was found that the most important to risk appraisal could be directly related to our categories of ‘agency risk’ and ‘business risk’. It was found too that the time profiles of investments and their sensitivity to changed assumptions could be approached using our three risk categories. Of these, ‘innovation risk’ was thought to be particularly high, implying various forms of adaptation by investors, including setting very high hurdle rates of return and deploying radical stress tests of investment models. |
| Keywords: | Venture Capital, Risk Management, High-Technology, Fieldwork |
| JEL: | G24 D81 L84 M21 L21 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:0107&r=ino |
| By: | Gavin C. Reid; Julia A. Smith |
| Abstract: | This paper examines, in a high technology context, how investor and investee behave, and interact, in the face of risk. The evidence on which it is based was obtained by fieldwork methods, over the period 2000-2, examining a sample of UK investors and investees active in high technology areas. The paper focuses on four questions: how risky are investments; what affects risk most; what aspects of innovation affect risk; what non-financial factors affect risk most? It finds that there was general agreement between investors and investees about which investments were relatively more or less risky. However, investees were shown to be relatively more risk averse than investors, right across the spectrum of investee types. When it came to factors affecting risk most, there was a clear difference between investors and investees. Agency risk was largely the concern of the investor. Business risk was the investee’s first priority, and agency risk did not figure large in the investee’s mind. This suggests that this component of risk had successfully been shifted on to the investor. Business risk was also a clear concern of investors, but they placed more emphasis on matters like market opportunities and sales, than did investees. The paper concludes that investors and investees generally see risk in the same light, but, that when views differ, this is explicable either by function (producer/ funder) or by relative risk aversion. |
| Keywords: | Venture Capital, Risk Management, High-Technology, Fieldwork |
| JEL: | G24 D81 L84 M21 L21 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:0205&r=ino |
| By: | Gavin C. Reid |
| Abstract: | This paper uses statistical analysis to characterise ‘industry practice’, in terms of concordance of investors concerning appropriate practice. The evidence was gathered by field work methods in 2000-01, and refers to the practices of twenty UK venture capital investors, who accounted for the bulk of funds allocated to high technology investments in the UK. This paper has two parts: general and detailed statistical analysis. 1) In the first part, the main finding is of a coherent (and generally statistically significant picture) of investor conduct towards high-technology companies. Thus it is found that investors assign risk premia and expected values, and use risk classes. They adopt relatively short time horizons, but follow quite sophisticated procedures in investment appraisal. For example, they use sensitivity analysis, cash flow prediction, financial modelling, and decision trees. However, they miss out in some sophisticated areas of technical analysis, including Value at Risk (VaR), and simulation methods (including Monte Carlo methods). 2) The second part of the paper focuses on risk, factors influencing it, and innovation. Its aim is to discover if there is a kind of ‘industry standard’ or consensus about what is most important to investors in the high technology area. Largely, that turned out to be the case. The UK venture capitalists are agreed on what are high-risk and low-risk investments. They also agree on what are the key commercial factors affecting risk. However, when it comes to non-commercial factors, this consensus starts to crumble. Finally, so far as features of innovation are concerned, industry consensus starts to break down entirely. Thus, there do remain important areas in which investor practice is opaque. Therefore, there remains a need for further research into investor practice in the UK. |
| Keywords: | Venture Capital, Risk Management, High-Technology, Fieldwork |
| JEL: | G24 D81 L84 M21 L21 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:0206&r=ino |
| By: | Davide Consoli (Centre for Research on Innovation & Competition CRIC - University of Manchester) |
| Abstract: | This article investigates the factors that have induced and shaped the process of industry evolution of banking in the United Kingdom and, in particular, the reorganization of the retail payments system. It will look at how the effects of technical progress within a changing regulatory framework have contributed to the flourishing of new consumer services, of increasingly specialized technologies and of new models of business organization. In relation to these issues, the paper develops an interpretative framework based on the rapidly expanding body of literature on technological systems. In so doing it argues also that the organization of the payment system has evolved towards a multilayered and increasingly heterogeneous industry in which competition has been fuelled at different levels by the growing diversity of the ecology of agents involved, as well as by the emerging patterns of interaction across them. |
| JEL: | G21 L10 L23 O31 |
| Date: | 2005–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0506004&r=ino |
| By: | Davide Consoli (Centre for Research on Innovation & Competition CRIC - University of Manchester) |
| Abstract: | This article investigates the factors that have induced and shaped the process of industry evolution of banking in the United Kingdom and, in particular, the reorganization of the retail payments system. It will look at how the effects of technical progress within a changing regulatory framework have contributed to the flourishing of new consumer services, of increasingly specialized technologies and of new models of business organization. In relation to these issues, the paper develops an interpretative framework based on the rapidly expanding body of literature on technological systems. In so doing it argues also that the organization of the payment system has evolved towards a multilayered and increasingly heterogeneous industry in which competition has been fuelled at different levels by the growing diversity of the ecology of agents involved, as well as by the emerging patterns of interaction across them. |
| JEL: | G21 L10 L23 O31 |
| Date: | 2005–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0506006&r=ino |