nep-ino New Economics Papers
on Innovation
Issue of 2007‒09‒24
eighteen papers chosen by
Koen Frenken
Utrecht University

  1. Cooperative R&D under Uncertainty with Free Entry By Nisvan Erkal:Daniel Piccinin
  2. Do Mergers of Potentially Dominant Firms foster Innovation? An Empirical Analysis for the Manufacturing Sector By Elena Cefis; Anna Sabidussi; Hans Schenk
  3. From shifting agriculture to sustainable rubber agroforestry systems (jungle rubber) in Indonesia: a history of innovations processes. By Eric Penot
  4. What Is the Value of Entrepreneurship? A Review of Recent Research By C. Mirjam van Praag; Peter H. Versloot
  5. Measuring Regional Innovativeness - A Methodological Discussion and an Application to One German Industry By Tom Broekel; Thomas Brenner
  6. Intellectual Property Protection and Technology Transfer: Evidence From US Multinationals By Sunil Kanwar
  7. Dynamics of knowledge creation and transfer: The two person case By Berliant, Marcus; Fujita, Masahisa
  8. Creative Class and Regional Growth - Empirical Evidence from Eight European Countries By Ron A. Boschma; Michael Fritsch
  9. Cultural Assimilation, Cultural Diffusion and the Origin of the Wealth of Nations By Ashraf, Quamrul; Galor, Oded
  10. Environmental Innovation, War of Attrition and Investment Grants By Cesare Dosi; Michele Moretto
  11. Políticas de Apoio Financeiro à Inovação Tecnológica: Avaliação dos Programas MCT/Finep para Empresas de Pequeno Porte By José Mauro de Morais
  12. The Role of Innovation in Merger Policy: Europe’s Efficiency Defence versus America’s Innovation Markets Approach By Elena Cefis; Mark Grondsma; Anna Sabidussi; Hans Schenk
  13. Financial development and innovation in small firms By Sharma, Siddharth
  14. The Effect of Contractual Complexity on Technology Sourcing Agreements By Hansen, Zeynep; Higgins, Matthew
  15. Brain Drain - Brain Circulation or... What Else Happens or Should Happen to the Brains Some Aspects of Qualified Person Mobility/Migration By Andreas Breinbauer
  16. Financial Innovation and the Transactions Demand for Cash By Alvarez, Fernando E; Lippi, Francesco
  17. Product Cycle and Industrial Hollowing-out: The Case of the Electrical and Electronics Sector of Taiwan By Tzu-Han YANG; Yueh-Po LIAO
  18. Investment decisions in hospital technology when physicians are devoted workers By Rossella Levaggi; Michele Moretto; Vincenzo Rebba

  1. By: Nisvan Erkal:Daniel Piccinin
    Abstract: In the last few decades, the effects of cooperative R&D arrangements on innovation and welfare have played an important role in policy making. The goal of this paper is to analyze the effects of cooperative R&D arrangements in a model with a stochastic R&D process and output spillovers. Our main innovation is to allow for free entry in both the R&D race and the product market. To determine the desirability of cooperation in R&D environments, we compare three different ways of organizing R&D activities: R&D competition, R&D cartels, and RJV cartels. In contrast with the literature, we assume that cooperative R&D arrangements do not have to include all of the firms in the industry. We show that sharing of research outcomes is a necessary condition for the profitability of cooperative R&D arrangements with free entry. The profitability of RJV cartels depends on their size. The impact of cooperative R&D arrangements on the aggregate level of innovation depends on whether there are participants in the R&D race who are a part of the cooperative R&D arrangement. If some outsiders choose to participate in the R&D race, the aggregate rate of innovation remains unaffected by the formation of a cooperative R&D arrangement. Otherwise, it increases. R&D cartels may be welfare-improving in cases when they cause the aggregate rate of innovation to increase. In such cases, it may be desirable to subsidize them. Since sharing of R&D outcomes affects the equilibrium number of firms in the product market after the R&D race, the consumer welfare effects of RJV cartels are sensitive to the specification of consumer preferences. Subsidies may be desirable in cases of larger RJVs since they are the ones which are less likely to be profitable.
    Keywords: Cooperative R&D; Research joint ventures; Free entry; Uncertain R&D; Technology spillovers.
    JEL: L1 L4 O3
    Date: 2007
  2. By: Elena Cefis; Anna Sabidussi; Hans Schenk
    Abstract: We investigate the effects of M&A on innovation in the specific context of potential or realized market dominance. Authorities are challenged by balancing both detrimental and beneficial effects of mergers on innovation, especially when a merger threatens to result in market dominance, while firms would wish to uncover all the potential benefits arising from M&A. The effects of M&As on innovation have been tested on a panel dataset, constructed from the Dutch Community Innovation Survey and the Dutch Business Register, including around 1000 manufacturing companies. We have adopted a comprehensive approach, taking into consideration three dimensions of innovation: innovation inputs, innovation outputs and efficiency. The results show that M&As performed in the previous 3-5 years have a positive and significant effect on innovation except R&D expenses and innovation efficiencies. The results also suggest that technological regimes are critical to understanding the patterns of innovation.
    Keywords: Mergers and Acquisitions, Innovation, Market Dominance
    JEL: C14 D21 L11 L25
    Date: 2007–09
  3. By: Eric Penot (INNOVATION - Changement technique, apprentissage et coordination dans l'agriculture et l'agroalimentaire - [CIRAD : UMR85])
    Abstract: The aim of this chapter is to describe changes in the Indonesian jungle rubber system from the angle of the production of innovation by farmers themselves (indigenous knowledge) and the process of integration of external technical innovations in an overall process of creation of innovation. In other words, the integration of indigenous knowledge at different stages of history with rubber has enabled, and continues to enable farmers to rely on the sustainable cropping and farming systems represented by agroforestry systems.
    Keywords: shifting agriculture ; complex agroforestry systems ; jungle rubber ; rubber ; adoption of innovations
    Date: 2007–09–19
  4. By: C. Mirjam van Praag (University of Amsterdam, Tinbergen Institute, Max Planck Institute of Economics Jena and IZA); Peter H. Versloot (University of Amsterdam and Tinbergen Institute)
    Abstract: This paper examines to what extent recent empirical evidence can collectively and systematically substantiate the claim that entrepreneurship has important economic value. Hence, a systematic review is provided that answers the question: What is the contribution of entrepreneurs to the economy in comparison to non-entrepreneurs? We study the relative contribution of entrepreneurs to the economy based on four measures that have most widely been studied empirically. Hence, we answer the question: What is the contribution of entrepreneurs to (i) employment generation and dynamics, (ii) innovation, and (iii) productivity and growth, relative to the contributions of the entrepreneurs’ counterparts, i.e. the ‘control group’? A fourth type of contribution studied is the role of entrepreneurship in increasing individuals’ utility levels. Based on 57 recent studies of high quality that contain 87 relevant separate analyses, we conclude that entrepreneurs have a very important - but specific - function in the economy. They engender relatively much employment creation, productivity growth and produce and commercialize high quality innovations. They are more satisfied than employees. More importantly, recent studies show that entrepreneurial firms produce important spillovers that affect regional employment growth rates of all companies in the region in the long run. However, the counterparts cannot be missed either as they account for a relatively high value of GDP, a less volatile and more secure labor market, higher paid jobs and a greater number of innovations and they have a more active role in the adoption of innovations.
    Keywords: entrepreneur, entrepreneurship, self-employment, productivity, economic development, growth, employment, innovation, patents, R&D, utility, remuneration, income
    JEL: D24 D31 E23 E24 J21 J28 J31 L26 M13
    Date: 2007–08
  5. By: Tom Broekel (Max Planck Institute of Economics, Evolutionary Economics Group); Thomas Brenner (Max Planck Institute of Economics, Evolutionary Economics Group)
    Abstract: The regional or national innovation performance has been repeatedly measured in the literature; but it has so far not been discussed what this means, especially in relation to a region. What is the contribution of a region to innovation output? The usual approaches implicitly assume that higher innovation outputs per inhabitant, employee, or R+D employee can be assigned to a region. We argue that more insights are gained if we distinguish between various mechanisms that influence the innovation activities in a region. Different analyses need to be conducted, using different variables and including different local factors. Furthermore, we see no justification for using a linear dependence of innovation activity on the number of inhabitants or employees as a benchmark for performance. We use a method that takes into account these arguments and apply it to the Electrics + Electronics industry in Germany.
    Keywords: Regional innovation performance, regional innovativeness, non-parametric performance analysis, measurement of regional innovativeness
    JEL: R11 R15 O31
    Date: 2007–09–17
  6. By: Sunil Kanwar (Department of Economics, UC San Diego)
    Abstract: This paper investigates wheter, in what direction, and to what extent one mode of technology transfer is influenced by the strength of intellectual property protection that host nations provide. Using data spanning the period 1977 - 1999, we find little support for the claim that strengthening intellectual property rights will have any sizable effect on the magnitude of overseas R&D investment by (US) multinationals. Any semblance of a positive relationship between these two variables vanishes the moment we introduce country fixed effects and time fixed effects into the regressions. One implication of our resutls is, that ceteris paribus, stronger intellectual property rights in the developing countries pursuant to the TRIPs agreement may not have any significant influence on technology transfer into thes countries via overseas R&D.
    Keywords: intellectual property, technology transfer, overseash r&d,
    Date: 2007–07–01
  7. By: Berliant, Marcus; Fujita, Masahisa
    Abstract: This paper presents a micro-model of knowledge creation and transfer for a couple. Our model incorporates two key aspects of the cooperative process of knowledge creation: (i) heterogeneity of people in their state of knowledge is essential for successful cooperation in the joint creation of new ideas, while (ii) the very process of cooperative knowledge creation affects the heterogeneity of people through the accumulation of knowledge in common. The model features myopic agents in a pure externality model of interaction. In the two person case, we show that the equilibrium process tends to result in the accumulation of too much knowledge in common compared to the most productive state. Equilibrium paths are found analytically, and they are a discontinuous function of initial heterogeneity.
    Keywords: knowledge creation; knowledge transfer; knowledge externalities; endogenous agent heterogeneity
    JEL: D83 O31 R11
    Date: 2007–09–18
  8. By: Ron A. Boschma (Utrecht University, Department of Economic Geography, Utrecht, Netherlands); Michael Fritsch (Friedrich Schiller University Jena, German Institute of Economic Research, Berlin, and Max Planck Institute of Economics, Jena, Germany)
    Abstract: We analyze the regional distribution and the effect of people in creative occupations based on data for more than 450 regions in eight European countries. The geographic distribution of the creative class is highly uneven. The creative class is not attracted to highly urbanized regions per se, but rather a climate of tolerance and openness seem to be rather important factors. We find that the creative class has a positive and significant effect on employment growth and new business formation at the regional level. Human capital as measured by creative occupation outperforms indicators that are based on formal education.
    Keywords: Creativity, innovation, entrepreneurship, regional development
    JEL: O31 O18 R12
    Date: 2007–09–17
  9. By: Ashraf, Quamrul; Galor, Oded
    Abstract: This research argues that variations in the interplay between cultural assimilation and cultural diffusion have played a significant role in giving rise to differential patterns of economic development across the globe. Societies that were geographically less vulnerable to cultural diffusion, benefited from enhanced assimilation, lower cultural diversity and, thus, more intense accumulation of society-specific human capital, enabling them to flourish in the technological paradigm that characterized the agricultural stage of development. The lack of cultural diffusion and its manifestation in cultural rigidity, however, diminished the ability of these societies to adapt to a new technological paradigm, which delayed their industrialization and, thereby, their take-off to a state of sustained economic growth. The theory contributes to the understanding of the advent of divergence and overtaking in the process of long-run development, attributing the dominance of some societies within a given technological regime to a superior operation of cultural assimilation, while the success of others in the switch between technological regimes to a higher frequency of cultural diffusion and the beneficial effect of diversity on the adaptability of society to a changing technological environment. Thus, in contrast to the cultural and institutional hypotheses, which posit a hierarchy of cultural and institutional attributes in terms of their conduciveness to innovation and their ability in fostering industrialization, the proposed theory suggests that the desirable degree of the relative prevalence of cultural assimilation versus cultural diffusion varies according to the stage of development. Enhanced cultural assimilation is optimal within a given stage of development, but is detrimental for the transition between technological regimes. Therefore, while cultural traits themselves do not necessarily have a differential effect on the process of development, it is the variation in the relative strengths of the forces of cultural assimilation and cultural diffusion, which together determine the heterogeneity of these traits, that is instrumental for comparative economic development.
    Keywords: cultural assimilation; cultural diffusion; cultural diversity; geography
    JEL: O11 O13 O14 O31 O33 O41 O43
    Date: 2007–08
  10. By: Cesare Dosi (Università di Padova); Michele Moretto (Università di Padova)
    Abstract: The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms’ switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminately
    Keywords: Environmental innovation, Investment irreversibility, Network externalities, Investment grants, Second-price auction.
    JEL: Q28
    Date: 2007–09
  11. By: José Mauro de Morais
    Abstract: This paper evaluates the main programs of the Science and Technology Department (MCT) designed to give financial support for micro and small business. The programs, conducted by the technology development agency of the MCT, Financiadora de Estudos e Projetos (Finep), are the following: i) Zero Interest Rate Program, ii) Pappe - Program to Support Small Enterprises Research, iii) Pappe - Economic Subvention for Small Enterprise, iv) Economic Subvention for Enterprises ? with reserved funds earmarked for small enterprises, v) Finep/Sebrae partnership to support innovation projects in small enterprises, in cooperation with Science and Technology Institutions; vi) Inovar Project, a program directed to the development of venture capital and seed capital funds. To subsidize the analyses of the programs, developed in section five, the paper discusses, in section two, the difficulties of small firms in accessing conventional credit, and presents a conceptual model of the main types of equity financing for small firms, associated to their business life cycle. Section three reviews information about the support for research and innovation for small enterprises in some countries, and describes interesting experiences of programs to develop the venture capital market. Section four reviews the new Brazilian legislation directed for supporting research and innovation processes in the productive sector, which are made up of the following policy instruments and legislation: Funds for Science and Technology; Brazilian Industrial Technological and Trade Policy (PITCE); Law 10.973/2004 Foreign (Innovation Law) and the Micro and Small Firms? Statute, recently approved by the National Congress. Section six presents the summary and the final comments.
    Date: 2007–08
  12. By: Elena Cefis; Mark Grondsma; Anna Sabidussi; Hans Schenk
    Abstract: Changes in the world’s economies and discussions in the literature about the growing importance of innovation to firms have given rise to a demand for expanding the analysis of merger policy. The present study focuses on the different criteria used to assess the impact of M&A activities on innovation. The analysis is both theoretical and empirical. From a theoretical perspective, two main approaches are discussed: the efficiency defence approach, adopted in Europe, and the innovation markets doctrine as developed in the United States. The present paper contributes to the literature by suggesting that an integration of the two approaches would significantly improve M&A assessment. On the empirical side, two cases that have been scrutinised by both the European Commission and the U.S. Federal Trade Commission are discussed. The results show the relevance of the different approaches used when dealing with innovation in the assessment of mergers.
    Keywords: Mergers and Acquisitions, Innovation, Efficiency Defence
    JEL: C14 D21 L11 L25
    Date: 2007–09
  13. By: Sharma, Siddharth
    Abstract: This paper uses firm level data from a cross-section of 57 countries to study how financial development affects innovation in small firms. The analysis finds that relative to large firms in the same industry, spending on research and development by small firms is more likely and sizable in countries at higher levels of financial development. The estimates imply that among firms doing research and development in a country like Romania, which is at the 20th percentile of financial development, a 1 standard deviation decrease in firm size is associated with a decrease of 0.7 standard deviations in research and development spending. In contrast, this decrease is only 0.2 standard deviations in a country like South Africa, which is at the 80th percentile of the distribution of financial development. Small firms also report producing more innovations per unit of research and development spending than large firms, and this gap is narrower in countries at higher levels of financial development. As a robustness check, the author shows that these patterns are stronger in industries inherently more reliant on external finance.
    Keywords: Debt Markets,Microfinance,,Access to Finance,E-Business
    Date: 2007–09–01
  14. By: Hansen, Zeynep; Higgins, Matthew
    Abstract: Most research on strategic alliances ignores the underlying contracts that govern the terms of the relationship. This is problematic since it is how these contracts are structured that determines how firms will benefit from a relationship. We present a novel method to analyze contractual complexity in a multi-dimensional framework in an attempt to link together the contractual complexity and control rights literatures. We find that the stage of development, age and prevalence of the underlying technology most influence complexity. Contractual complexity also influences the allocation of control rights. We also explore the importance of prior relationships on the underlying contract.
    Keywords: Contractual complexity; Control rights; Strategic alliances; Biopharmaceutical industry; Contractual design
    JEL: L2 G3
    Date: 2007–09–17
  15. By: Andreas Breinbauer (wiiw)
    Abstract: The article provides a general introductory overview of the (spatial) mobility of highly skilled/qualified persons and discusses the different terms of the mobility of the Highly Skilled, especially those of scientists. It outlines theoretical and empirical aspects of these movements and delineates the drain of European talent to the U.S., especially the outflow of scientists and researchers who contribute considerably to the U.S. innovation system. Further, it takes a closer look at outward mobility in the former socialist countries in Europe, especially in South Eastern Europe, in the period before and after the fall of the Iron Curtain. Finally, the article outlines general policy options in dealing with the mobility of the Highly Qualified.
    Keywords: Brain Drain, Eu, USA, High Skill, High Skilled. Mobility, Migration
  16. By: Alvarez, Fernando E; Lippi, Francesco
    Abstract: We extend the Baumol-Tobin cash inventory model to a dynamic environment, which allows for the possibility of withdrawing cash at random times at a low cost. This modification captures developments in withdrawal technology, such as the increasing diffusion of bank branches and ATM terminals. We document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives. We characterize the solution of the model and show that qualitatively it is able to reproduce such patterns. Estimating the structural parameters we show that the model accounts for key features of the data. The estimates are used to quantify the expenditure and interest rate elasticity of money demand, the impact of financial innovation on money demand, the welfare cost of inflation, the gains of disinflation and the benefit of ATM ownership.
    Keywords: inventory models; money demand; technological progress
    JEL: E5
    Date: 2007–09
  17. By: Tzu-Han YANG; Yueh-Po LIAO
    Abstract: This paper traces the route of Taiwan's industrial restructuring from 1980 to 1999, during which period Taiwan switched from a capital inflowing country to a capital-outflowing one. By establishing an empirical model based on the idea of Vernon's product cycle theory, we construct a quantitative measurement of product turnover and product upgrading. Tests are applied to the electrical and electronic industry to see whether its product turnover and product upgrading has significantly slowed down in the 1990s. If so, we may conclude that the industrial hollowing-out may have appeared. The empirical results show that product turnover and product upgrading do not significantly deteriorate in 1990s though the performances of the sub-industries within the EE industry are largely differentiated in 1990s compared with that in 1980s.
    Date: 2007–09
  18. By: Rossella Levaggi (Università di Brescia); Michele Moretto (Università di Padova); Vincenzo Rebba (Università di Padova)
    Keywords: Hospital Technology, Devoted worker, Quality, Irreversible investment, Real options.
    JEL: I11 D81
    Date: 2007–09

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