nep-ino New Economics Papers
on Innovation
Issue of 2018‒08‒27
sixteen papers chosen by
Uwe Cantner
University of Jena

  1. The role of industry, occupation, and location specific knowledge in the survival of new firms By C. Jara-Figueroa; Bogang Jun; Edward Glaeser; Cesar Hidalgo
  2. Directed Technical Change in Clean Energy: Evidence from the Solar Industry By Lööf, Hans; Perez, Luis; Baum, Christopher F
  3. Optimal Clean Energy R&D Investments Under Uncertainty By Giacomo Marangoni; Gauthier De Maere; Valentina Bosetti
  4. Patent licensing in a Cournot oligopoly: general results By Sen, Debapriya; Tauman, Yair
  5. Foreign Competition and Domestic Innovation: Evidence from U.S. Patents By David Autor; David Dorn; Gary Pisano; Gordon Hanson; Pian Shu
  6. Patents to Products: Innovation and Firm Performance By David Argente; Douglas Hanley; Salome Baslandze; Sara Moreira
  7. Should the Government Subsidize Innovation or Automation? By Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi; Liao, Chih-Hsing
  8. Cascading Innovation By Vasco Carvalho; Mirko Draca
  9. Corporate Governance, Managerial Compensation, and Disruptive Innovations By Murat Celik; Xu Tian
  10. Beyond the Arrow effect: a Schumpeterian theory of multi-quality firms * By Hélène Latzer
  11. Threshold Policy Effects and Directed Technical Change in Energy Innovation By Nesta, Lionel; Verdolini, Elena; Vona, Francesco
  12. Barriers to Reallocation and Economic Growth: the Effects of Firing Costs By Toshihiko Mukoyama; Sophie Osotimehin
  13. Spatial Competition, Innovation and Institutions: The Industrial Revolution and the Great Divergence By Klaus Desmet; Avner Greif; Stephen Parente
  15. Crowdsourced innovation: How community managers affect crowd activities By Hornuf, Lars; Jeworrek, Sabrina
  16. Public R&D Support and Firms' Performance: A Panel Data Study By Nilsen, Øivind Anti; Raknerud, Arvid; Lancu, Diana-Cristina

  1. By: C. Jara-Figueroa; Bogang Jun; Edward Glaeser; Cesar Hidalgo
    Abstract: How do regions acquire the knowledge they need to diversify their economic activities? How does the migration of workers among firms and industries contribute to the diffusion of that knowledge? Here we measure the industry, occupation, and location-specific knowledge carried by workers from one establishment to the next using a dataset summarizing the individual work history for an entire country. We study pioneer firms--firms operating in an industry that was not present in a region--because the success of pioneers is the basic unit of regional economic diversification. We find that the growth and survival of pioneers increase significantly when their first hires are workers with experience in a related industry, and with work experience in the same location, but not with past experience in a related occupation. We compare these results with new firms that are not pioneers and find that industry-specific knowledge is significantly more important for pioneer than non-pioneer firms. To address endogeneity we use Bartik instruments, which leverage national fluctuations in the demand for an activity as shocks for local labor supply. The instrumental variable estimates support the finding that industry-related knowledge is a predictor of the survival and growth of pioneer firms. These findings expand our understanding of the micro-mechanisms underlying regional economic diversification events.
    Date: 2018–07
  2. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Perez, Luis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Baum, Christopher F (Department of Economics, Boston College and Department of Macroeconomics)
    Abstract: This paper studies directed technical change and innovation in renewable energy. We construct panel data with micro- and macro observations from nearly 200 countries over a 20-year period and estimate how energy prices, government subsidies, financial markets, spillovers, and path dependence affect patenting in solar thermal and solar cells. Carbon taxes, R&D subsidies to solar technology and own-knowledge stocks have strong, significant positive effects on solar innovations. Subsidies to fossil energy have the adverse effect. We find no compelling evidence that the quality of financial markets and institutions has any consistent impact on the patenting activities of innovators in solar energy.
    Keywords: Directed Technical Change; Climate Change; Innovation; Patents; Solar Energy.
    JEL: O13 O30 P28 P47
    Date: 2018–08–15
  3. By: Giacomo Marangoni; Gauthier De Maere; Valentina Bosetti
    Abstract: The availability of technology plays a major role in the feasibility and costs of climate policy. Nonetheless, technological change is highly uncertain and capital intensive, requiring risky efforts in research and development of clean energy technologies. In this paper, we introduce a two-track method that makes it possible to maintain the rich set of information produced by climate-economy models while introducing the dimension of uncertainty in innovation ef- forts, without succumbing to computation complexity. In particular, we solve the problem of an optimal R&D portfolio by employing Approximate Dynamic Programming, through multiple runs of an integrated assessment model (IAM) for the purpose of computing the value function, and expert elicitation data to quantify the relevant uncertainties. We exemplify the methodology with the problem of evaluating optimal near-term innovation investment portfolios in four key clean energy technologies (solar, biofuels, bioelectricity and personal electric vehicle batteries), taking into account the uncertainty surrounding the effectiveness of innovation to improve the performance of these technologies. We employ an IAM (WITCH) which has a fairly rich description of the energy technologies and experts’ beliefs on future costs for the above-mentioned technologies. Focusing on Europe and its short-term climate policy commitments, we find that batteries in personal transportation dominate the optimal public R&D portfolio. The resulting ranking across technologies is robust to changes in risk-aversion, R&D budget limitation and assump- tions on crowding out of other investments. These results suggest an important upscaling of R&D efforts compared to the recent past.
    Keywords: Research and Development/Tech Change/Emerging Technologies
    Date: 2017–04–12
  4. By: Sen, Debapriya; Tauman, Yair
    Abstract: This paper presents a comprehensive analysis of patent licensing in a Cournot oligopoly with general demand and looks at both outside and incumbent innovators. The licensing policies considered are upfront fees, unit royalties and combinations of fees and royalties (FR policies). It is shown that (i) royalties unambiguously ensure full diffusion of the innovation while diffusion is limited under upfront fees, (ii) the Cournot price is higher under royalties compared to upfront fees and the price could even exceed the post-innovation monopoly price, (iii) for generic values of magnitudes of the innovation, when the industry size is relatively large, royalties are superior to upfront fees for the innovator and (iv) for any m, there is always a non empty subset of m-drastic innovations such that for relatively large industry sizes, upfront fee policy results in higher consumer surplus as well as welfare compared to both royalty and FR policies.
    Keywords: patent licensing; m-drastic innovation; royalties; upfront fees; FR policy
    JEL: D4 D43 D45 L13 L24
    Date: 2018–08
  5. By: David Autor (Massachusetts Institute of Technology); David Dorn (University of Zurich); Gary Pisano; Gordon Hanson (University of California, San Diego); Pian Shu (Georgia Institute of Technology)
    Abstract: The competitive shock to the U.S. manufacturing sector spurred by rising China import competition could either catalyze or stifle innovation. Using three distinct sources of variation to identify rising trade exposure, we provide a causal analysis of the effect of surging import competition on U.S. innovative activities. Applying a novel internet-based matching algorithm to map all U.S. utility patents granted by 2013 to firm-level data, and carefully accounting for the shifting concentration of patenting activity across sectors, we document a robust, negative impact of rising Chinese competition on firm-level and technology class-level patent production. Accompanying this fall in innovation, global employment, sales, profitability, and R&D expenditure all decline within trade-exposed firms. The trade-induced contraction along all margins of adjustment and for all measures of valuation suggest that the primary response of firms to greater import competition is to scale back their global operations.
    Date: 2018
  6. By: David Argente (University of Chicago); Douglas Hanley (University of Pittsburgh); Salome Baslandze (EIEF - Einaudi Institute for Economics a); Sara Moreira (Northwestern University)
    Abstract: What do standard patent-based innovation measures capture? Using the unique match of firms’ patenting activities and their product introduction in the con sumer goods sector, we study the relationship between patents and innovation. Our current results indicate that both at the extensive margin and the intensive margin, patents (and citations-adjusted patents) are strongly associated with higher product introduction as well as product destruction and hence larger re allocation at the firm level. We provide additional evidence that this association is at least partly causal. Firms that are patenting also introduce products of higher quality, enjoy larger sales and hold more diverse set of products. We disentangle the effect of patents on product versus process innovation, distinction that has been hard to measure from standard data sources. We find that the effect of patenting on product creation is larger for smaller firms, while the process innovation seems more pronounced in larger firms. Textual analysis of patents and product descriptions sheds additional light on the exact transmission of innovation embedded in the patents into specific product creation.
    Date: 2018
  7. By: Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi; Liao, Chih-Hsing
    Abstract: This study introduces automation into a Schumpeterian model to explore the different effects of R&D and automation subsidies. R&D subsidy increases innovation and decreases the share of automated industries with an overall inverted-U effect on economic growth. Automation subsidy decreases innovation and increases the share of automated industries also with an inverted-U effect on growth. Calibrating the model to US data, we find that the current level of R&D (automation) subsidy is above (below) the growth-maximizing level. Simulating transition dynamics, we find that changing R&D (automation) subsidy to its growth-maximizing level causes a welfare gain of 3.8% increase in consumption.
    Keywords: automation, innovation, economic growth
    JEL: O3 O4
    Date: 2018–08
  8. By: Vasco Carvalho (U of Cambridge); Mirko Draca (University of Warwick)
    Abstract: US government spending since World War II has been characterized by large investments in defense-related high-tech goods and services and R&D. In turn, this means that the Department of Defense (DoD) has had a large role in funding corporate innovation in the US. This paper (i) quantifies the impact of military procurement spending on corporate innovation by publicly listed firms and (ii) shows that DoD impact on innovation was not limited to the winners of defense contracts but instead cascaded through the supply chainof DoD contractors via indirect market size effects, working through firm-to-firm input linkages. We use a database of detailed, historical procurement contracts for all Department of Defense (DoD) prime contracts since 1966. Product-level spending shifts are used as a source of exogenous variation in firm-level procurement receipts. We combine this data with information on the supply chain linkages of publicly listed firms. Our estimates indicate that defense procurement has a positive direct impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation for DoD contractors. Further, our estimates imply that the derived demand for inputs following the award of a DoD contract constitutes a large indirect market size effect for the suppliers of DoD contractors. These indirect market size effects in turn induce innovation cascades working up the supply chain. We find that the elasticity of innovation outcomes to indirect DoD market size shocks is about half of that estimated for direct contractors but affects a much larger number of firms, increasing the effect of defense spending on aggregate innovation by at least 20%.
    Date: 2018
  9. By: Murat Celik (University of Toronto); Xu Tian (University of Toronto)
    Abstract: Whether a CEO manages the innovation efforts of the firm in line with shareholder preferences has a substantial impact on market value and firm growth, which in turn influence aggregate productivity growth and welfare. Using data on U.S. public firms, we find that (i) firms with better corporate governance tend to adopt highly incentivized contracts rich in stock options; and (ii) such contracts are more likely to lead to disruptive innovations -- patented inventions that are in the upper tail of the distribution in terms of quality and originality. We develop and estimate a new dynamic general equilibrium model of firm-level innovation with agency frictions and endogenous determination of executive contracts. The model is used to study the joint dynamics of corporate governance, managerial compensation, and disruptive innovations. Better corporate governance can reduce the influence of the CEO in the determination of the compensation structure. This leads to more incentivized contracts and boosts innovation, with substantial benefits for the shareholders, as well as the broader economy through knowledge spillovers. Shutting down the agency frictions leads to an increase in long-run output growth, which translates into a significant welfare gain in consumption equivalent terms.
    Date: 2018
  10. By: Hélène Latzer (CEREC - Université Saint-Louis - Bruxelles, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper introduces multi-quality firms within a Schumpeterian framework. Featuring non-homothetic preferences and income disparities in an otherwise standard quality-ladder model, we show that the resulting differences in the willingness to pay for quality among consumers generate both positive investments in R&D by industry leaders and positive market shares for more than one quality, hence allowing for the emergence of multi-product firms within a vertical innovation framework. This positive investment in R&D by incumbents is obtained with complete equal treatment in the R&D field between the incumbent patentholder and the challengers: in our framework , the incentive for a leader to invest in R&D stems from the possibility for an incumbent having innovated twice in a row to efficiently discriminate between rich and poor consumers displaying differences in their willingness to pay for quality. We hence exemplify a so far overlooked demand-driven rationale for innovation by incumbents. Such a framework also makes it possible to analyze the impact of inequality both on long-term growth and on the allocation of R&D activities between challengers and incumbents. We find that an increase in the income gap positively impacts an econ-omy's growth rate, partly shifting R&D activities from challengers to incumbents. On the other hand, a greater income concentration is detrimental for growth, diminishing both the incumbents' and the challengers' R&D activities.
    Keywords: Growth,Innovation,Income inequality
    Date: 2016–10
  11. By: Nesta, Lionel; Verdolini, Elena; Vona, Francesco
    Abstract: This paper analyzes the effect of environmental policies on the direction of energy innovation across countries over the period 1990-2012. Our novelty is to use threshold regression models to allow for discontinuities in policy effectiveness depending on a country's relative competencies in renewable and fossil fuel technologies. We show that the dynamic incentives of environmental policies become effective just above the median level of relative competencies. In this critical second regime, market-based policies are moderately effective in promoting renewable innovation, while command-and-control policies depress fossil based innovation. Finally, market-based policies are more effective to consolidate a green comparative advantage in the last regime. We illustrate how our approach can be used for policy design in laggard countries.
    Keywords: Research and Development/Tech Change/Emerging Technologies
    Date: 2018–02–26
  12. By: Toshihiko Mukoyama (Department of Economics, Georgetown University); Sophie Osotimehin (Department of Economics, University of Virginia)
    Abstract: We study how factors that hinder the reallocation of inputs across firms influence aggregate productivity growth. We extend Hopenhayn and Rogerson's (1993) general equilibrium firm dynamics model to allow for endogenous innovation. We calibrate the model using US data, and then evaluate the effects of firing taxes on reallocation, innovation, and aggregate productivity growth. In our baseline specification, we find that firing taxes reduce overall innovation and productivity growth. We also show that firing taxes can have opposite effects on the entrants' innovation and the incumbents' innovation, and thus the overall outcome depends on the relative strengths of these forces.
    Keywords: Innovation, R&D, Reallocation, Firing costs
    JEL: E24 J24 J62 O31 O47
    Date: 2018–08–13
  13. By: Klaus Desmet; Avner Greif; Stephen Parente
    Abstract: A market-size-only theory of industrialization cannot explain why England developed nearly two centuries before China. One shortcoming of such a theory is its exclusive focus on producers. We show that once we incorporate the incentives of factor suppliers' organizations such as craft guilds, industrialization no longer depends on market size, but on spatial competition between the guilds' jurisdictions. We substantiate our theory (i) by providing historical and empirical evidence on the relation between spatial competition, craft guilds and innovation, and (ii) by showing the calibrated model correctly predicts the timings of the Industrial Revolution and the Great Divergence.
    JEL: N10 O11 O14 O31 O43
    Date: 2018–06
  14. By: Lowenberg-DeBoer, J.; Musa, Shehu
    Abstract: With five million bags sold in the 2007-2015 period and thousands of rural vendors, the Purdue Improved Crop Storage (PICS) bags have been a very successful innovation for African and Asian farmers. The primary Purdue University intellectual property (IP) in PICS is the trademark. The goal of this study is to describe the role of PICS trademark licensing in the PICS success. Some key points from the study: • Trademarking PJCS seems to have been an effective strategy for combating low quality imitators. Initially, PICS trademarking was suggested by a Nigerian PICS manufacturer as a way to manage imitators. While several large manufacturers have made their own version of the triple layer PICS bag, none of those larger businesses tried to use the trademark. The small "backyard" manufacturers who tried to use the trademark stopped when sent a cease and desist letter by Purdue. Anecdotal accounts indicate that West African farmers have confidence in PICS trademarked bags and prefer to buy them to store their crops. • As donorfunding wound downfor PJCS projects, the trademark became the main mechanism for Purdue support to manufacturers and licensees. The trademark license provides a formal, legal structure within which that relationship can function. Ina context where national institutions are weak, many manufacturers and distributors find that technical support from Purdue attractive. The support provided ranged widely from help with manufacturing problems to facilitating succession when a licensee died without leaving succession plans. • PJCS has shown that African and Asian licensees are willing topay licensefees, but the transactions and opportunity costs are high on both sides. Those transactions costs include bank wire fees, exchange costs, staff effort and informal taxes required for the paperwork. In the developing country context where cash is hard to come by and work capital perpetually lacking, there is a real opportunity cost of sending some of that money out of the country, instead of reinvesting it in the business. • The sustainability of the PJCS brand probably requires moving management outside of the university. University business processes are slow and cumbersome. Management costs are high because of public sector accounting and personnel rules. University faculty and staff have many responsibilities; they cannot devote full time to commercialization of an innovation. • The most durable impact of the PICS project is in the private investment in developing the next generation of hermetic grain storage for smallholder farmers. Twenty years ago those companies would have dismissed the idea of developing grain storage technology for small holder farmers. The perception was that smallholder farmers lacked the entrepreneurial motivation and/or the cash flow to be a substantial market. PICS showed the business community that there is a market on smallholder farms for technologies that solve their problems.
    Keywords: International Development, Research and Development/Tech Change/Emerging Technologies
    Date: 2017–02
  15. By: Hornuf, Lars; Jeworrek, Sabrina
    Abstract: In this study, we investigate whether and to what extent community managers in online collaborative communities can stimulate crowd activities through their engagement. Using a novel data set of 22 large online idea crowdsourcing campaigns, we find that active engagement of community managers positively affects crowd activities in an inverted U-shaped manner. Moreover, we evidence that intellectual stimulation by managers increases community participation, while individual consideration of users has no impact on user activities. Finally, the data reveal that community manager activities that require more effort, such as media file uploads instead of simple written comments, have a larger effect on crowd participation.
    Keywords: crowdsourcing,open innovation,crowdsourced innovation,crowdworking,ideation,managerial attention
    JEL: J21 J22 L86 M21 M54 O31
    Date: 2018
  16. By: Nilsen, Øivind Anti (Norwegian School of Economics); Raknerud, Arvid (Statistics Norway); Lancu, Diana-Cristina (Statistics Norway)
    Abstract: We analyse all the major sources of direct and indirect R&D subsidies in Norway in the period 2002-2013 and compare their effects on individual firms' performance. Firms that received support are matched with a control group of firms that did not receive support using a combination of stratification and propensity score matching. Changes in performance indicators before and after support in the treatment group are compared with contemporaneous changes in the control group. We find that the average effects of R&D support among those who obtained grants and/or subsidies are positive and significant in terms of performance indicators related to economic growth: value added, sales revenue and number of employees. The estimated effects are larger for start-up firms than incumbent firms when the effects are measured as relative effects (in percentage points), but smaller when these effects are translated into level effects. Finally, we do not find positive effects on return to total assets or productivity for firms who received support compared with the control group.
    Keywords: public policy, firm performance, treatment effects, stratification, propensity score matching, productivity
    JEL: C33 C52 D24 O38
    Date: 2018–06

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