nep-ino New Economics Papers
on Innovation
Issue of 2008‒03‒25
ten papers chosen by
Steffen Lippert
Massey University Department of Commerce

  1. R&D and market structure in a horizontal differentiation framework By Davide Fantino
  2. Entrepreneurial Innovation and Sustained Long-Run Growth without Weak or Strong Scale Effects By Grossmann, Volker
  3. The Impact of Medicare Part D on Pharmaceutical R&D By Margaret E. Blume-Kohout; Neeraj Sood
  4. Is Medicine an Ivory Tower? Induced Innovation, Technological Opportunity, and For-Profit vs. Non-Profit Innovation By Jay Bhattacharya; Mikko Packalen
  5. Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions By Thomas J. Holmes; David K. Levine; James A. Schmitz, Jr.
  6. Patent, Inequality and Innovation-Driven Growth By Hatipoglu, Ozan
  7. An Empirical Analysis of the Relationship Between Inequality and Innovation in a Schumpeterian Framework By Hatipoglu, Ozan
  8. Corruption and Innovation: A Grease or Sand relationship? By Prashanth Mahagaonkar
  9. Total factor productivity and the role of entrepreneurship By Hugo Erken; Piet Donselaar; Roy Thurik
  10. Search Pathways to Innovation By Tommy Clausen

  1. By: Davide Fantino (Bank of Italy, branch of Turin)
    Abstract: This paper examines the dynamic interaction between R&D and market structure in a horizontally differentiated market framework. Firms invest in R&D to modify the level of differentiation of their products, increasing their specialization and their market power. The invested resources in research are declining over time because of decreasing returns from further specialization. Prices, output and short-run profits of the firms producing differentiated products increase and move towards the higher steady state values, while production of the non-differentiated good falls; the number of firms is constant in all periods. The increasing specialization of varieties improves the overall utility of consumers. The comparison with the socially optimal solution shows that firms underinvest in R&D. Firms do not internalize the effects of their research effort on the overall level of substitutability of the other varieties and on the profits of the other firms.
    Keywords: R&D, market power, horizontal differentiation
    JEL: O3
    Date: 2008–01
  2. By: Grossmann, Volker (University of Fribourg)
    Abstract: R&D-based growth theory suggests that a larger population size raises either the long-run rate of economic growth (“strong scale effect”) or the level of per capita income (“weak scale effect”), with far-reaching policy implications. However, for modern times there is little empirical support for strong scale effects and evidence in favor of weak scale effects is mixed, at best. This paper develops a simple overlapping-generations framework with endogenous occupational choice of heterogeneous agents and entrepreneurial innovations in which any form of scale effect is absent. A higher population growth rate has a negligible, possibly negative effect on the long-run growth rate of per capita income. Long-run growth is sustained also in absence of population growth and generally is policy-dependent.
    Keywords: economic growth, endogenous technical change, entrepreneurial skills, population growth, scale effects
    JEL: O10 O30 O40
    Date: 2008–03
  3. By: Margaret E. Blume-Kohout; Neeraj Sood
    Abstract: Recent evidence suggests that Medicare Part D has increased prescription drug use among the elderly, and earlier studies have indicated that increasing market size induces pharmaceutical innovation. This paper assesses the impact of Medicare Part D on pharmaceutical research and development (R&D), using time-series data on the number of drugs in preclinical and clinical development by therapeutic class. We demonstrate that the passage of Medicare Part D was associated with significant increases in pharmaceutical R&D, especially for classes with high elderly market share.
    JEL: H51 I18 O30
    Date: 2008–03
  4. By: Jay Bhattacharya; Mikko Packalen
    Abstract: This paper examines whether the composition of medical research responds to changes in disease incidence and research opportunities. The paper also provides new evidence on induced pharmaceutical innovation. In both cases we use the change in the demographic structure of the market (measured by age structure and obesity prevalence) to test the induced innovation hypothesis. Technological opportunity is calculated from estimates of structural productivity parameters. The extent of inventive activity is measured from the MEDLINE database on 16 million biomedical publications. We match these data with data on disease incidence. We show that medical research responds to changes in disease incidence and research opportunities. We also find that pharmaceutical innovation responds to aging- and obesity-induced changes in potential market size.
    JEL: I1 L31 O33
    Date: 2008–03
  5. By: Thomas J. Holmes; David K. Levine; James A. Schmitz, Jr.
    Abstract: When considering the incentive of a monopolist to adopt an innovation, the textbook model assumes that it can instantaneously and seamlessly introduce the new technology. In fact, firms often face major problems in integrating new technologies. In some cases, firms have to (temporarily) produce at levels substantially below capacity upon adoption. We call such phenomena switchover disruptions, and present extensive evidence on them. If firms face switchover disruptions, then they may temporarily lose some unit sales upon adoption. If the firm loses unit sales, then a cost of adoption is the foregone rents on the sales of those units. Hence, greater market power will mean higher prices on those lost units of output, and hence a reduced incentive to innovate. We introduce switchover disruptions into some standard models in the literature, show they can overturn some famous results, and then show they can help explain evidence that firms in more competitive environments are more likely to adopt technologies and increase productivity.
    JEL: L10 L12
    Date: 2008–03
  6. By: Hatipoglu, Ozan
    Abstract: When people have hierarchic preferences inequality affects innovation-driven growth through the implied demand distribution over new goods. The paper examines the demand path of the firm through its life-cycle and analyzes the efficiency of dynamic resource allocation under different inequality scenarios. Unlike previous models of inequality and demand induced innovation, the innovators are protected by patents of finite length. Longer patents increase the profitability of an innovation because they reduce the effect of inequality by increasing the likelihood that the firms benefit from a future demand jump in sales to the poor. This result does not hold, however, when initial inequality is low or the purchasing power of the poor is high. Moreover, reducing inequality does not increase growth as long as the amount of redistribution is below a threshold level.
    Keywords: innovation dynamics; finite patents; hierarchic preferences; wealth inequality.
    JEL: O15 O31 O14
    Date: 2008–03–20
  7. By: Hatipoglu, Ozan
    Abstract: I empirically investigate the non-linear relationship between inequality and innovation in a Schumpeterian setup where growth is expressed by the rate of innovations. In this framework income distribution plays a role in determining the dynamic market sizes for innovators and therefore is a major determinant of growth. By using two new cross-country inequality data sets, I find support for an inverted U-shaped relationship between inequality and innovative activities. This result is robust to two common inequality definitions and several parametric and non-parametric estimation procedures.
    Keywords: inequality; innovation; patents
    JEL: O15 O31
    Date: 2008–03–20
  8. By: Prashanth Mahagaonkar (Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group)
    Abstract: This paper provides a firm-level empirical analysis on the ways in which corruption affects innovative activity. Particularly with respect to the African continent that is striving to reconcile with instability and poverty, this issue seems to be of utmost importance. Using a newly available dataset on African firms, it is shown that corruption has a negative effect on product innovation and organisational innovation. Corruption does not affect process innovation while it facilitates marketing innovation.
    Keywords: Corruption, Developing Economies, Product Innovation, Process Innovation, Organisational Innovation, marketing Innovation, Taxation
    JEL: D73 O14 O31 H11 H25
    Date: 2008–03–14
  9. By: Hugo Erken (Ministry of Economic Affairs, Erasmus University Rotterdam); Piet Donselaar (Ministry of Economic Affairs); Roy Thurik (Erasmus University Rotterdam; Max Planck Institute of Economics; EIM Business and Policy Research)
    Abstract: Total factor productivity of twenty OECD countries for a recent period (1971-2002) is explained using six different models based on the established literature. Traditionally, entrepreneurship is not dealt with in these models. In the present paper it is shown that - when this variable is added - in all models there is a significant influence of entrepreneurship while the remaining effects mainly stay the same. Entrepreneurship is measured as the business ownership rate (number of business owners per workforce) corrected for the level of economic development (GDP per capita).
    Keywords: Total factor productivity, research and development, entrepreneurship, OECD
    JEL: E20 L26 M13 O10 O30 O40 O50
    Date: 2008–03–14
  10. By: Tommy Clausen (Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: Organizational search processes is an important source of firm level heterogeneity in evolutionary - behavioural theory. Combining insights from established and recent evolutionary-behavioural theory we propose that R&D and managerial perceptions constitute two distinct search pathways to innovation. R&D is in this context a measure of institutionalized routine based search, while managerial perception of problems captures situational and cognitive search. Using a new survey of industrial enterprises we find that these search pathways are related to product, process, organizational and market innovation at the firm level, although in a diverse way.
    Date: 2008–03

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