nep-ino New Economics Papers
on Innovation
Issue of 2006‒04‒08
sixteen papers chosen by
Koen Frenken
Universiteit Utrecht

  1. Knowledge Flow and Sequential Innovation: Implications for Technology Diffusion, R&D and Market Value By Sharon Belenzon
  2. Exploring Links Between Innovation and Diffusion: Adoption of NOx Control Technologies at U.S. Coal-Fired Power Plants By David Popp
  3. Persistence of Innovation in Dutch Manufacturing: Is it Spurious? By Wladimir Raymond; Pierre Mohnen; Franz Palm; Sybrand Schim van der Loeff
  4. Intellectual Property Rights and Biotechnology: How to improve the present patent system By Ignazio Musu
  5. Basic Research and Sequential Innovation By Sharon Belenzon
  6. Innovation Performance and Government Intervention By Svensson, Roger
  7. Vertical integration and the licensing of innovation with a fixed fee or a royalty By Lemarié, S.
  8. International Firm Activities and Innovation: Evidence from Knowledge Production Functions for German Firms By Joachim Wagner
  9. What type of firm forges closer innovation linkages with Portuguese Universities? By Aurora A.C. Teixeira; Joana Costa
  10. The Impact of New Laboratory Procedures and Other Medical Innovations on the Health of Americans, 1990-2003: Evidence from Longitudinal, Disease-Level Data By Frank R. Lichtenberg
  11. Linkages and Spillovers from Foreign Ownership in the Indian Pharmaceutical Firms By Shandre M. Thangavelu; Sanja Samirana Pattnayak
  12. The Role of R&D in Productivity Growth: The Case of Agriculture in New Zealand: 1927 to 2001 By Julia Hall; Grant M Scobie
  13. R&D and Strategic Industrial Location in International Oligopolies By Garcia Pires, Armando José
  14. A game theoretic analysis of the conditions of knowledge transfer by new employees in companies By Sidonia vonLedebur
  15. International Trade with Competitiveness Effects in R&D By Garcia Pires, Armando José
  16. Die ökonomischen Eigenschaften von Software By Sebastian von Engelhardt

  1. By: Sharon Belenzon
    Abstract: It is shown that spillovers can enhance private returns to innovation if they feed back into the dynamic research of the original inventor (Internalized spillovers), but will always reduce private returns, if the original inventor does not benefit from the advancements other inventors build into the `spilled` knowledge (Externalized spillovers). I empirically identify unique patterns of knowledge flows (based on patent citations), which provide information about whether `spilled` knowledge is reabsorbed by its inventor. A simple model of sequential innovation with dynamic spillovers is developed, which predicts that market value and R&D expenditures should rise with Internalized spillovers and fall with Externalized spillovers. These predications are confirmed using panel data on U.S. firms between 1981 and 2001. To the extent that firms internalize some of the spillovers they create, the classical underinvestment problem in R&D will be mitigated and the central role of spillovers in promoting economic growth will be enhanced.
    Keywords: Market Value, Patents, R&D, Spillovers
    JEL: O31 O32 O33
    Date: 2006
  2. By: David Popp
    Abstract: While many studies have looked at innovation and adoption of technologies separately, the two processes are linked. Advances (and expected advances) in a single technology should affect both its adoption rate and the adoption of alternative technologies. Moreover, advances made abroad may affect adoption differently than improvements developed domestically. This paper combines plant-level data on U.S. coal-fired electric power plants with patent data pertaining to NOx pollution control techniques to study these links. I show that technological advances, particularly those made abroad, are important for the adoption of newer post-combustion treatment technologies, but have little effect on the adoption of older combustion modification techniques. Moreover, I provide evidence that adaptive R&D by U.S. firms is necessary before foreign innovations are adopted in the U.S. Expectations of future technological advances delay adoption. Nonetheless, as in other studies of environmental technologies, the effect of other explanatory variables is dominated by the effect of environmental regulations, demonstrating that the mere presence of environmental technologies is not enough to encourage its usage.
    JEL: L94 O31 O33 Q53 Q55
    Date: 2006–03
  3. By: Wladimir Raymond; Pierre Mohnen; Franz Palm; Sybrand Schim van der Loeff
    Abstract: This paper studies the persistence of innovation and the dynamics of innovation output in Dutch manufacturing using firm data from three waves of the Community Innovation Surveys (CIS), pertaining to the periods 1994-1996, 1996-1998, and 1998-2000. We estimate by maximum likelihood a dynamic panel data type 2 tobit model accounting for individual effects and handling the initial conditions problem. We find that there is no evidence of true persistence in achieving technological product or process innovations, while past shares of innovative sales condition, albeit to a small extent, current shares of innovative sales.
    Keywords: dynamic panel data type 2 tobit, innovation, spurious persistence
    JEL: C33 C34 O31
    Date: 2006
  4. By: Ignazio Musu (Department of Economics, University of Venice "Ca' Foscari")
    Abstract: The paper discusses two types of problems related to assigning or denying intellectual property rights to agro-biotechnological innovations in the relation between developed and developing countries. First, protecting property rights on innovations creates incentives towards further research and innovation, which in some cases may be beneficial to society, in others not so. If the assigning of the right does not guarantee the potential beneficial use of the innovation, not assigning rights would not prevent its potentially dangerous utilization. Secondly, the power of exclusion of the holder of an intellectual property right limits access to the newly produced knowledge: this may discourage the process of producing new knowledge, harming developing countries. Moreover the property right holder may end up with excessive market power when commercializing the innovation, which is also harmful to developing countries. It is shown that these problems cannot be solved by denying protection to property rights on innovations, but by improving procedures for awarding these rights and accompanying them with appropriate liability rules and antitrust measures.
    Keywords: Intellectual property rights, Biotechnology, Patent system
    JEL: O30 O33 O34
    Date: 2006
  5. By: Sharon Belenzon
    Abstract: The commercial value of basic knowledge depends on the arrival of follow-up developments mostly from outside the boundaries of the inventing firm. Private returns would depend on the extent the inventing firm internalizes these follow-up developments. Such internalization is less likely to occur as knowledge becomes more general. This motivates the historical concern of insufficient private incentive for basic research. The present paper develops a novel empirical methodology of identifying unique patterns of knowledge flows (based on patent citations), which provide information about whether `spilled` knowledge is reabsorbed by its inventor. Using comprehensive data on the largest 500 inventing firms in the US the classical problem of underinvestment in basic research is confirmed: spillovers of more general knowledge (and in this respect, more basic) are less likely to feed back to the inventing firm. This translates to lower private returns, as indicated by the effect of the R&D stock of the firm on its market value.
    Keywords: Basic Knowledge, Spillovers, Patents, Citation
    JEL: O31 O32 O33
    Date: 2006
  6. By: Svensson, Roger (The Research Institute of Industrial Economics)
    Abstract: External financing is important when inventors and small technology-based firms wish to commercialize their inventions. However, it is likely that problems related to adverse selection and moral hazard are present, and market failures occur, since inventors know more about the inventions than do potential external financiers. To overcome these problems, the Swedish Government has intervened in the market by offering loans with different terms to firms and inventors. Using a unique database on Swedish patents owned by individuals and small firms, this paper analyzes how different forms of external financing influence the outcome when patents are commercialized. The estimations show that projects with soft government financing in the R&D-phase have a significantly worse performance than projects without such financing, whereas projects with more market-oriented government loans perform as the average. Distinguishing between governmental financing alternatives with different terms makes it possible to draw the conclusion that government failure primarily depends on bad financing terms, rather than bad choices of projects. A policy implication is therefore that government institutions should make their loans more market-oriented already in the R&D-phase.
    Keywords: Patents; Commercialization; Innovations; Outcome; External Financing; Government Intervention
    JEL: G30 O31 O38
    Date: 2006–02–28
  7. By: Lemarié, 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
  8. By: Joachim Wagner (Institute of Economics, University of Lüneburg)
    Abstract: Using a knowledge production framework and a rich set of plant level data this study demonstrates that in Germany firms that are active on international markets as exporters or foreign direct investors do generate more new knowledge than firms which sell on the national market only. These differences are not only due to a larger firm size, or different industries, or the use of more researchers in these firms, but due to the fact these globally engaged firms learn more from external sources, too. The importance of these knowledge sources varies with the type of innovation. These results, which are broadly in line with the findings of a recent study using UK firm level data, can help to explain the strong positive correlation between productivity and international activities of firms. Firms that are active on markets beyond the national borders generate higher levels of new knowledge that feed into higher productivity.
    Keywords: Exports, foreign direct investment, knowledge production function, Germany
    JEL: F14 F23 O31
    Date: 2006–03–01
  9. By: Aurora A.C. Teixeira (CEMPRE, Faculdade de Economia, Universidade do Porto); Joana Costa (Faculdade de Economia and Faculdade de Letras, Universidade do Porto)
    Abstract: Using large-scale survey data for (1538) firms located in Portugal, we analyze which firm characteristics are conducive to establishing contacts with universities. Although almost half of the firms surveyed stated they had established some contacts with universities in the period 2001-2003, only a few (21.5%) consider universities an important source of knowledge and information for their innovation activities. A more disturbing finding is that 61% of the total firms claimed they had no intentions of establishing future contacts with universities and 38% would only be moderately interested in doing so (‘if requested’). The Universities of Minho, Porto and Aveiro are the ones that cover a higher percentage of contacts from firms. Furthermore, in terms of the most demanding type of contacts (protocols, partnerships and projects), the Técnica de Lisboa (Lisbon Technical), Aveiro and Porto are the best-ranked universities. Our analysis indicates that the firms’ propensity to draw on each of the Portuguese universities is explained by the characteristics of the different firms and their regional and industrial patterns. For instance, firms that have established contacts with the Aveiro, Coimbra, Évora, Lisboa, and the Nova (Lisbon) universities tend to be relatively R&D-intensive, whereas those that contact the Católica (Porto) and Porto universities are relatively large and export-intensive. If we exclude the Algarve and Beira Interior universities, firms that contact all the other universities tend to be relatively human capital-intensive. Firms belonging to ‘R&D and Engineering services’ show a relatively high propensity to draw on universities in general, and the Aveiro, Beira Interior, Católica (Porto), Porto and Técnica de Lisboa universities, in particular. ‘Textiles and leather’ firms establish more contacts with the Beira Interior and Minho universities, thus reflecting to some extent the specialization pattern of the corresponding region. An unambiguous and statistically robust finding is that proximity matters highly in firms-universities linkages - our estimations reveal that firms are more likely to contacts universities located nearby.
    Keywords: University, Firm, linkages
    JEL: O38 C25
    Date: 2006–03
  10. By: Frank R. Lichtenberg
    Abstract: This study examines the effect of the introduction of new laboratory procedures and other medical goods and services on the health of Americans during the period 1990-2003. We hypothesize that, the more medical innovation there is related to a medical condition, the greater the improvement in the average health of people with that condition. To test this hypothesis, we estimate models of health outcomes using longitudinal disease-level data. We measure innovation in five types of medical procedures or products: pathology & laboratory procedures, outpatient prescription drugs, inpatient prescription drugs, surgical procedures, and diagnostic radiology procedures. We examine two kinds of (inverse) indicators of health: mortality and disability. The mortality indicator we analyze is the mean age at death of people whose underlying cause of death is medical condition i. The disability measures we analyze are the fraction of people with medical condition i who (1) missed work, or (2) spent one or more days in bed, due to that condition. Our estimates indicate that conditions with higher rates of lab and outpatient drug innovation had larger increases in mean age at death, controlling for other medical innovation rates and initial mean age at death. The 1990-1998 increase in mean age at death attributable to use of new lab procedures is estimated to be about 6 months. This is 42% of the total increase in mean age at death (1.18 years) in our sample of diseases. New laboratory procedures introduced during 1990-1998 are estimated to have saved 1.13 million life-years in 1998. Expenditure per life-year gained from new lab procedures is estimated to be $6093. Treatments that cost this amount are generally considered to be quite cost-effective. In the analysis of disability, when we don’t control for the initial level of disability, we find that conditions with higher rates of lab and outpatient innovation had greater declines in the probability of missing work during 1996-2003. This suggests that the use of new laboratory procedures reduced the number of work-loss days in 2003 by 42 million. When we control for initial disability, the inverse relationship between lab innovation and disability changes disappears. This is because there is a significant inverse relationship between initial health and the extent of laboratory innovation. But due to errors in measuring initial health, controlling for this variable may cause the impact of innovation on health to be underestimated.
    JEL: I12 J1 O33
    Date: 2006–03
  11. By: Shandre M. Thangavelu (Department of Economics National University of Singapore, 1 Arts Link); Sanja Samirana Pattnayak (Department of Economics National University of Singapore, 1 Arts Link)
    Abstract: The paper examines the spillover and linkage effects from the presence of foreign firms in the Indian pharmaceutical industry. A comprehensive panel data consisting of nearly 200 firms from 1989 to 2000 was used in the current study. The recent semi-parametric estimation methods as suggested by Olley and Pakes (1996) and Levinsohn and Petrin (2003) were adopted to account for the endogeneity in the input demand. Our results suggest the existence of positive and significant spillover from the foreign equity ownership in the Indian pharmaceutical industry. However, we also found negative and significant spillovers from the backward linkages with foreign firms. The negative spillovers from the backward linkages suggest the possibility of large technology and efficiency gap between local and foreign firms. The results also suggest that institutional arrangements that protect intellectual property rights such as product patents as opposed to process patents will be important for establishing positive linkages and spillovers between local and foreign firms in the Indian pharmaceutical industry.
    Keywords: FDI, Backward and Horizontal Linkages, Olley-Pakes, Levinsohn-Petrin
    JEL: F23 C23 O3
  12. By: Julia Hall; Grant M Scobie (New Zealand Treasury)
    Abstract: Productivity growth is a key determinant of rising living standards. The agricultural sector has been an important contributor to the overall growth of productivity in New Zealand. The average rate of multifactor productivity growth in agriculture from 1926-27 to 2000-01 was 1.8%. We find evidence that this rate has been increasing especially since the reforms of the 1980s. This paper estimates the contribution that R&D has made to agricultural productivity. It develops a theoretical framework based on the stock of knowledge available to producers. This model incorporates foreign stocks of knowledge and the spill-in effect for New Zealand. The estimation allows for extended lag effects of research spending on productivity. We find that foreign knowledge is consistently an important factor in explaining the growth of productivity. It appears that the agricultural sector relies heavily on drawing on the foreign stock of knowledge generated off-shore. The contribution of domestic knowledge generated by New Zealand’s investment in R&D is less clear cut. However, there is typically a significant positive relation between domestic knowledge and the growth of productivity. We find a wide range of estimates of the return to domestic R&D. The results are sensitive to the type of model used and the specification of the variables. Based on our preferred model we estimate that investment in domestic R&D has generated an annual rate of return of 17%. The results underscore the importance of foreign knowledge in a small open economy. The very existence of foreign knowledge may be a necessary condition for achieving productivity growth in a small open economy. However in no way could it be argued that this was sufficient. Having a domestic capability that can receive and process the spill-ins from foreign knowledge is vital to capturing the benefits. The challenge is to be able to isolate those effects from aggregate data for the agricultural sector. In that task we claim only modest success.
    Keywords: New Zealand; technological change; R&D; productivity; economics of knowledge; spillovers; rates of return; agriculture
    JEL: O30 O40
    Date: 2006–03
  13. By: Garcia Pires, Armando José
    Abstract: In a spatial economy where oligopolist firms compete in R&D, it is found that geography affects the innovative behaviour of firms. Notably, international differences in market size conduce to endogenous asymmetries between firms given that firms located in the country with more demand have stronger incentives to invest in R&D. This 'R&D linkage' between demand and competitiveness promotes firms to strategically delocalize to the larger country. As a result, a spatial equilibrium arises with only total or partial agglomeration, but never with symmetric dispersion.
    Keywords: agglomeration effects; asymmetric firms; industrial location; oligopoly; R&D investment
    JEL: F12 L13 O31 R3
    Date: 2006–03
  14. By: Sidonia vonLedebur
    Abstract: The availability of knowledge is an essential factor for an economy in global competition. Companies realise innovations by creating and implementing new knowledge. Sources of innovative ideas are partners in the production network but also new employees coming from another company or academia.
    Date: 2006–03
  15. By: Garcia Pires, Armando José
    Abstract: In an oligopoly trade model where firms engage in R&D, international differences in market size allow for the emergence of endogenous asymmetries between firms. Concretely, firms located in countries with more demand become more competitive because they have strong incentives to perform R&D ('home market' and 'competitiveness effects' in R&D). As a consequence, these firms have better access to export markets and the countries where they are hosted often also tend to run trade surplus in the oligopolist sector. This shows that cross-border differences at the level of R&D intensity can be a basis for international specialization.
    Keywords: asymmetric firms; competitiveness effects; international trade; oligopoly; R&D investment; spatial demand markets
    JEL: F12 L13 O31
    Date: 2006–03
  16. By: Sebastian von Engelhardt (University of Jena, Faculty of Economics)
    Abstract: Software ist ein Gut mit besonderen ökonomischen Eigenschaften. In diesem Artikel werden, ausgehend von einer allgemeinen Definition des Gutes Software, systematisch zentrale Eigenschaften herausgearbeitet, welche Implikationen für die Produktion und Kostenstruktur, die Nachfrage, der Bestreitbarkeit von Softwaremärkten und der Allokationseffizienz haben. Dabei hat es sich als sinnvoll erwiesen, die einzelnen Eigenschaften unter folgende Oberbegriffe zu subsummieren: Software als System zur Datenverarbeitung, Software als System von Befehlen bzw. Anweisungen, Software als rekombinierbares System, Software als ein nur in diskreten Einheiten nutzbares Gut, Software als komplexes System und Software als ein immaterielles Gut. Es zeigt sich, dass Software eine Fülle von ökonomisch relevanten Eignschaften aufweist, die von Netzwerkeffekten über subadditiver Nutzenfunktion bis hin zur Nichtrivalität reichen. Besonders hervorzuheben ist, dass Software sich von anderen Informationsgütern fundamental unterscheidet: Zum Einen fehlt ein aus Kundensicht relevanter additiver Nutzen, zum Anderen ist der durchschnittliche Nutzer/Konsument lediglich an dem Funktionieren der Algorithmen interessiert, nicht aber an der zugrundeliegenden Information.
    Keywords: additiver Nutzen, binäre Nachfrage, digitale Güter, Erfahrungsgut, Humankapital, Informationgut, Kompatibilität, Komplexität, Netzwerkeffekte, Nichtrivalität im Konsum, Open Source, Rekombinierbarkeit, Software, subadditive Kostenfunktion, Wissen
    JEL: D82 D83 D62 D85 K11 L86
    Date: 2006–03–20

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