nep-ino New Economics Papers
on Innovation
Issue of 2006‒03‒18
twelve papers chosen by
Koen Frenken
Universiteit Utrecht

  1. Innovation, Competition and Welfare-Enhancing Monopoly By Michael R. Darby; Lynne G. Zucker
  2. Spots of interaction: an investigation on the relationship between firms and universities in Minas Gerais, Brazil By Márcia Siqueira Rapini; Eduardo da Motta e Albuquerque; Leandro Alves Silva; Sara Gonçalves Antunes de Souza; Hérica Morais Righi; Wellington Marcelo Silva da Cruz
  3. Vertical integration and the licensing of innovation with a fixed fee or a royalty By Lemari‚, S.
  4. Networks of Small Producers for Technological Innovation: Some Models By Chandra Pankaj
  5. When do more patents reduce R&D? By Robert M. Hunt
  6. Determinants of Swiss Firms’ R&D Activities at Foreign Locations: An Empirical Analysis Based on Firm-level Data By Spyros Arvanitis; Heinz Hollenstein
  7. R&D and Productivity in the UK: evidence from firm-level data in the 1990s By Mark Rogers
  8. The role of regional institutional entrepreneurs in the emergence of clusters in nanotechnologies By Mangematin, V.; Rip, A.; Delemarle, A.; Robinson, D.K.R.
  9. Economic Policies for Growth and Employment By Gavin Cameron; Nicholas Fawcett
  10. IP Protection in Belgian Universities - best practices and analysis in the European academic and business context By De Cleyn S.; Braet J.
  11. The Five Drivers: an empirical review By Nicholas Fawcett; Gavin Cameron
  12. Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution By Robert C. Allen

  1. By: Michael R. Darby; Lynne G. Zucker
    Abstract: The basic competitive model with freely available technology is suited for static industries but misleading as applied to major innovative economies for which development of new technologies equals in magnitude around 10% of gross domestic investment. We distinguish free generic technology from proprietary technologies resulting from risky investment with uncertain outcome. The totality of possible outcomes drives the national innovation system and the returns to a particular successful technology cannot be compared to its own direct investment costs. Eureka moments are hardly ever self-enabling and incentives are required to motivate investment attempting to turn them into an innovation. The alternative to a valuable proprietary innovation is not the same innovation freely available but the unchanged generic technology. Growth is concentrated in any country at any time in a few firms in a few industries that are achieving metamorphic technological progress as a result of breakthrough innovations. So long as the entry and exit of firms using the generic technology sets the price in an industry, one or more price-taking firms can coexist with proprietary technologies yielding more or less substantial quasi-rents to the sunk development costs. Consumer welfare is increased if an innovator creates a proprietary technology such that the market equilibrium price is reduced and output increased. If the technological breakthrough is sufficiently large for the innovator to drive all generic producers out of the industry and increase output as a wealth-maximizing monopolist, consumer welfare is surely increased. After some time, the innovative technology will diffuse into an imitative generic technology. The best innovators develop a stream of innovations so that technological leaders can maintain their status as dominant firm or monopolist for extended periods of time despite lagged diffusion, and consumers benefit from this stream as well. The economics of an innovative nation are different from those of the no-growth stationary state which we teach and fall back on. We propose an ambitious agenda to integrate major research streams treating innovation as an object of economic analysis into our standard models.
    JEL: D40 D24 O31 L1
    Date: 2006–03
  2. By: Márcia Siqueira Rapini (IEL-FIEMG); Eduardo da Motta e Albuquerque (Cedeplar-UFMG); Leandro Alves Silva (Cedeplar-UFMG); Sara Gonçalves Antunes de Souza (Unimontes); Hérica Morais Righi (Cedeplar-UFMG); Wellington Marcelo Silva da Cruz
    Abstract: Spots of interaction summarize the nature of partial connections (between science and technology) operating in the Brazilian system of innovation. A pilot study in Minas Gerais, Brazil, uses two new research tools (for immature NSIs) and presents a database with research groups located in universities and a database built upon an adapted version of the pioneering Yale and Carnegie Mellon Surveys. These complementary databases identify spots of interaction, indicating how economic sectors use specific science and engineering fields. This investigation identifies a dual role of universities in immature NSIs, as substitutes and/or complements firms R&D.
    Keywords: systems of innovation, underdevelopment, interactions between science and technology, surveys, universities
    JEL: O0
    Date: 2006–02
  3. By: Lemari‚, S.
    Abstract: In this paper, we analyse a situation where a patent holder is considered as an upstream firm that can license its innovation to some downstream companies that compete on a final market with differentiated products. Licensing contract may be based either on a royalty or a fixed fee. The patent holder can either be independant or vertically integrated with one of the downstream companies. We show that a licence based on a royalty works better with vertical integration, and that consequently, the patent holder have some interest to vertically integrate if it enables him to apply a royalty based license. The effect of vertical integration on the social surplus can be either positive or negative.
    JEL: D45 L22 L42 O31 O32
    Date: 2005
  4. By: Chandra Pankaj
    Abstract: Small producers face a variety of challenges - some related to markets and others related to capabilities. Inability to develop technological capabilities has often restricted small firms from growing large. In this paper, we present learning from three global networks , i.e., TAMA in Japan, Wenzhou in China and Rajkot in India, that have adopted a variety of mechanisms of coordination between small producers and has led to both capability enhancement and demand enhancement. We argue that the capability enhancement effects play as significant a role as demand enhancement effects in the growth of small firms. Coordination that allows firms to improve their capabilities enhances both productivity as well as innovative capabilities to develop new products and processes. The paper, with the help of these three case studies, presents a generic model for SME development that is based on acquiring distinctive capabilities and linkages with other small producers or other members of the supply chain. We propose distinctive determinants of a collaborative model for engaging SMEs in technological innovation over a period of time. These are : Focus of the Firm, Interactive Producers, Processing and Product Manufacturing, Innovation Investment, Markets, Market Makers (and market making processes), and Regulatory Support.
    Date: 2006–03–07
  5. By: Robert M. Hunt
    Abstract: This paper develops a simple duopoly model in which investments in R&D and patents are inputs in the production of firm rents. Patents are necessary to appropriate the returns to the firm’s own R&D, but patents also create potential claims against the rents of rival firms. Analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm’s R&D intensity and the number of patents it obtains. When that condition is violated, changes in exogenous parameters that induce an increase in firms’ patenting can also induce a decline in R&D intensity. Such a negative relationship is more likely when (1) there is sufficient overlap in firms’ technologies so that each firm’s inventions are likely to infringe the patents of another firm, (2) firms are sufficiently R&D intensive, and (3) patents are cheap relative to both the cost of R&D and the value of final output.
    Keywords: Patents ; Research and development
    Date: 2006
  6. By: Spyros Arvanitis (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)); Heinz Hollenstein (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: Using the OLI paradigm as theoretical framework, we explain econometrically why a firm invests in foreign R&D (model A), and, if it does, which factors determine the level of foreign R&D expenditures (model B). It turns out that the pattern of explanation is quite similar for both types of decisions. In both cases, O- and I-advantages are the main drivers of foreign R&D, whereas L-disadvantages of the Swiss location do not play any role. A descriptive analysis of a series of motives of Swiss firms for performing R&D abroad shows that market-seeking is the most important motive. Knowledge-seeking and (human) resource-seeking are of intermediate importance as motives of foreign R&D, whereas efficiency-seeking objectives are hardly relevant. These results are fully in line with those of the econometric modelling. The findings of both approaches imply that foreign and domestic R&D are complements rather than substitutes. “Asset exploiting” is more prevalent as a strategy of foreign R&D than “asset augmenting”.
    Keywords: Foreign R&D, Determinants of foreign R&D, Motives of foreign R&D; OLI paradigm; Asset augmenting, Asset exploiting
    JEL: O30
    Date: 2006–01
  7. By: Mark Rogers
    Abstract: The UK`s business R&D (BERD) to GDP ratio is low compared to other leading economies, and the ratio has slowly declined over the 1990s. This paper uses data on large UK firms to analyse the link between R&D and productivity over the 1989-2000 period. Using a production function approach, and a sample of up to 719 firms, various different samples and estimators are used to assess the elasticity of, and rate of return to, R&D. The results indicate that UK returns to R&D are similar to returns in other leading economies. Furthermore, the returns to R&D have been relatively stable over the 1990s. There is no evidence to suggest that stock market listed firms, or firms with higher past profitability, have significantly different returns. Overall, the results suggest that the low BERD to GDP ratio in the UK is unlikely to be due to direct financial or human capital constraints (as these imply finding relatively high rates of return). Instead, the low BERD to GDP ratio appears to reflect low (perceived) opportunities by firms and the inability of firms to manage R&D to generate value. The paper provides some, tentative evidence, that high rates of competition in the science-based sector are associated with low returns to R&D.
    Keywords: R&D, Productivity
    JEL: L10 O31 O34
    Date: 2006
  8. By: Mangematin, V.; Rip, A.; Delemarle, A.; Robinson, D.K.R.
    Abstract: In the case of new technologies like nanotechnology, institutional entrepreneurs appear who have to act at different levels (organizational, regional, national) at the same time. We reconstruct, in some detail, the history of two cases, in Grenoble and in Twente/Netherlands. An intriguing finding is that institutional entrepreneurs build their environment before changing their institution. They first mobilize European support to convince local and national levels before actual cluster building occurs. Only later will there be reactions against any de-institutionalisation caused at the base location. The Dutch case shows another notable finding: when mobilizing support the entrepreneur will have to agree to further conditions, and then ends up in a different situation (a broad national consortium) than originally envisaged (the final cluster involved a collaboration of Twente with two other centres). In general, an institutional entrepreneur attempts to create momentum, and when this is achieved, he has to follow rather than lead it.
    JEL: M13
    Date: 2005
  9. By: Gavin Cameron; Nicholas Fawcett
    Abstract: Turning Europe into a leading `global knowledge-based` economy has become something of an obsession for policy-makers in the EU. From the integrated guidelines of the Lisbon Agenda to the July 2005 announcement of a new scientific European Research Council, considerable effort has been directed towards selling a vision of Europe as a high-skilled, high-technology economy. However, this focus on the `New` economy mistakes the EU`s strengths, weaknesses and their causes. In reality, an improvement in its growth and employment prospects may lie with the decidedly unglamorous economics of labour market reforms and with the parts of the `Old` economy, which still comprises the main engine of growth. Innovation and the knowledge base are important, but these should not dominate the thoughts of policy-makers at the expense of other, equally important, factors. Systematic reform of the budet, progress on trade reform, along with a better investment climate, offer the opportunity to reallocate resources on the basis of the EU`s great strength: its skilled and competent people.
    Keywords: Productivity, Growth, Labour Markets, Europe, Reform, Lisbon Agenda
    JEL: J6 O47 O52
    Date: 2005
  10. By: De Cleyn S.; Braet J.
    Abstract: Protection of intellectual property has become an important topic in academic research. Since the concepts of academic spin-off and valorisation of academic research results gained influence in Europe, the academic culture and dissemination of research results is subject to a metamorphosis. This study aims to give a first insight in the ways and procedures used by Belgian Technology Transfer Offices (TTO’s) to protect the results of hard and often pioneering research work. The main topics addressed in this study concern the way of organising the TTO service within the university, the adopted policies and procedures, the method of prior art search and a indication of the cost structure through subventions and cost participation by departments and third parties. Analysis of the observed heterogeneity results in 4 archetypes during the evolution of a TTO. In a further stage, this study tries to discover similarities and differences between IP protection in Belgian universities and in commercial enterprises in innovating sectors and foreign universities. The analysis provides insight in the main differences between the academic and the commercial world in the matter of patent filing procedures and policies and IP protection.
    Date: 2006–02
  11. By: Nicholas Fawcett; Gavin Cameron
    Abstract: What are the sources of productivity growth? Economic theory offers a panoply of explanations, considering the effects on productivity of organisational factors, research and development activity and factor accumulation, amongst other influences. Translating these theoretical models into workable empirical vehicles is the focus of a large literature. This paper evaluates the empirical literature on productivity performance using the productivity framework conceived by HM Treasury, emphasising Five Drivers - physical capital skills, innovation, competition and enterprise. The paper emphasises the two factors are frequently overlooked: first, the effect of international openness on productivity catch-up, and secondly, the policy importance of divergences between private and social rates of return. Further, whilst evidence relating to the first four drivers is relatively abundant, evidence on the effect of enterprise is scarce.
    Keywords: Productivity, Growth, Technological Change, Five Drivers
    JEL: O30 O40
    Date: 2005
  12. By: Robert C. Allen
    Abstract: The paper reviews the macroeconomic data describing the British economy during the industrial revolution and shows that they contain a story of dramatically increasing inequality between 1800 and 1840: GDP per worker rose 37%, real wages stagnated, and the profit rate doubled. The share of profits in national income expanded at the expense of labour and land. A "Cambridge-Cambridge" model of economic growth and income distribution is developed to explain these trends. An aggregate production function explains the distribution of income (as in Cambridge, MA), while a savings function in which savings depended on property income (as in Cambridge, England) governs accumulation. Simulations with the model show that technical progress was the prime mover behind the industrial revolution. Capital accumulation was a necessary complement. The surge in inequality was intrinsic to the growth process. Technical change increased the demand for capital and raised the profit rate and capital`s share. The rise in profits, in turn, sustained the industrial revolution by financing the necessary capital accumulation.
    Keywords: British Industrial Revolution, Kuznets Curve, Inequality, Savings, Investment
    JEL: D63 N13 O41 O47 O52
    Date: 2005

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