nep-ino New Economics Papers
on Innovation
Issue of 2020‒05‒18
eight papers chosen by
Uwe Cantner
University of Jena

  1. Financial Distancing: How Venture Capital Follows the Economy Down and Curtails Innovation By Sabrina Howell; Josh Lerner; Ramana Nanda; Richard Townsend
  2. Taxation and Innovation: What Do We Know? By Ufuk Akcigit; Stefanie Stantcheva
  3. Political Failures in Innovation Policy: A Cautionary Note By Kärnä, Anders; Karlsson, Johan; Engberg, Erik
  4. Organizational structure and technological investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
  5. Open Innovation: from OI to OI2 By Vania Pacheco; Nuno Araujo; Luis Rocha
  6. Public policies and the art of catching up: matching the historical evidence with a multi-country agent-based model By Giovanni Dosi; Andrea Roventini; Emanuele Russo
  7. Capability accumulation and product innovation: an agent-based perspective By Claudius Graebner; Anna Hornykewycz
  8. Economics of Research and Innovation in Agriculture By Petra Moser

  1. By: Sabrina Howell (New York University); Josh Lerner (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Richard Townsend (University of California, San Diego)
    Abstract: Although late-stage venture capital (VC) activity did not change dramatically in the first two months after the COVID-19 pandemic reached the U.S., early-stage VC activity declined by 38%. The particular sensitivity of early-stage VC investment to market conditions- which we show to be common across recessions spanning four decades from 1976 to 2017- raises questions about the pro-cyclicality of VC and its implications for innovation, especially in light of the common narrative that VC is relatively insulated from public markets. We find that the implications for innovation are not benign: innovation conducted by VC-backed firms in recessions is less highly cited, less original, less general, and less closely related to fundamental science. These effects are more pronounced for startups financed by early-stage venture funds. Given the important role that VC plays in financing breakthrough innovations in the economy, our findings have implications for the broader discussion on the nature of innovation across business cycles.
    Keywords: Venture Capital, Innovation, Patents, Business Cycles, Recessions
    JEL: G24 O31
    Date: 2020–05
  2. By: Ufuk Akcigit; Stefanie Stantcheva
    Abstract: Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this paper, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the U.S., firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones.
    JEL: H21 H23 H25 O31 O33 O34 O38
    Date: 2020–05
  3. By: Kärnä, Anders (Research Institute of Industrial Economics (IFN)); Karlsson, Johan (Ratio Institute); Engberg, Erik (Örebro University)
    Abstract: Within the field of innovation studies, researchers have identified several market failures that hamper investment in R&D, innovation and growth in a market economy. Several policies such as government subsidies, tax deductions, soft loans, and public venture capital provided to firms that pursue R&D have therefore been recommended by researchers, in addition to regulations to increase the quality and standards of goods and services. Less attention has been paid to government failures in cases where a policy fails to achieve its stated goal, often due to conflicts between the interests of special interest groups and the public. This paper discusses the concept of government failure within an innovation policy context and why this perspective is important for policy design since it is likely that policies that aim to reduce market failures could suffer from political failures. A text analysis of all papers published in 5 leading innovation journals between 2010 and 2019, a total of 5,526 papers, indicates a lack of research about government failures, which could lead to recommendations from researches to policymakers not being successful due to political failures.
    Keywords: Innovation policy; Political economy; Political failure; Market failure; Public choice
    JEL: G28 H81 L26 L52 O38 P16
    Date: 2020–05–05
  4. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms' decisions to adopt a vertical integration or separation, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where upstream sectors conduct R&D investment. Such investment determines the production costs of the downstream sector and has knowledge and R&D spillovers on the rivals' costs. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, spillover, and incentives in innovation interact to determine the equilibrium vertical structure.
    Date: 2019–11
  5. By: Vania Pacheco (CATIM– Centro de Apoio Tecnologico a Industria Metalomecanica); Nuno Araujo (CATIM– Centro de Apoio Tecnologico a Industria Metalomecanica); Luis Rocha (CATIM– Centro de Apoio Tecnologico a Industria Metalomecanica)
    Abstract: Popularized in the early of 2000s, the concept of Open Innovation (OI) is a systematic process that instigates the circulation of ideas among different exploitation vectors focused on value creation. Over the past decade, the OI paradigm had a significant impact on the emergence of innovation networks and ecosystems. With the emergence of digital disruptive technologies, a new approach to OI has emerged -Open Innovation 2.0 (OI2) -incorporating technological, social, political, environmental dimensions, based on principles of integrated collaboration and co-created shared value, cultivating innovation ecosystems, unleashing the power of exponential technologies, with extraordinarily rapid adoption. This article will begin by explaining the evolution from IO to IO2. Key incentives, risks and costs associated with this new strategic approach to innovation will also be identified, as well as, the factors and the conditions of success that lead companies to formulate OI2 strategies starting from OI. This study will culminate in the identification of some initiatives developed in Portugal that are contributing to this transition. The analysis carried out will show that OI2 is not a panacea that can solve any challenge, but help drive significant structural changes and benefits through innovation to society and industry.
    Keywords: Open Innovation, Open Innovation 2.0, Co-creation, Digital Agenda, Networking
    JEL: Q32 Q55
    Date: 2020–05
  6. By: Giovanni Dosi; Andrea Roventini; Emanuele Russo
    Abstract: In this paper, we study the effects of industrial policies on international convergence using a multi-country agent-based model which builds upon Dosi et al. (2019b). The model features a group of microfounded economies, with evolving industries, populated by heterogeneous firms that compete in international markets. In each country, technological change is driven by firms' activities of search and innovation, while aggregate demand formation and distribution follows Keynesian dynamics. Interactions among countries take place via trade flows and international technological imitation. We employ the model to assess the different strategies that laggard countries can adopt to catch up with leaders: market-friendly policies; industrial policies targeting the development of firms' capabilities and R&D investments, as well as trade restrictions for infant industry protection; protectionist policies focusing on tariffs only. We find that markets cannot do the magic: in absence of government interventions, laggards will continue to fall behind. On the contrary, industrial policies can successfully drive international convergence among leaders and laggards, while protectionism alone is not necessary to support catching up and countries get stuck in a sort of middle-income trap. Finally, in a global trade war, where developed economies impose retaliatory tariffs, both laggards and leaders are worse off and world productivity growth slows down.
    Keywords: Endogenous growth; catching up; technology-gaps; industrial policies; agent-based models.
    Date: 2020–05–08
  7. By: Claudius Graebner (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Anna Hornykewycz (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: The paper studies the relevance of product heterogeneity for innovation dynamics using an agent-based model. The vantage point is a short a review on the empirical relevance of capability accumulation for innovation processes and an assessment of how these processes are modelled theoretically in evolutionary micro and macroeconomic models. This shows that the macroeconomic literature so far has focused on process innovations. To facilitate the consideration of empirical and microeconomic insights on product innovation in macroeconomic models, a simple agent-based model, which may later serve as an innovation module in macroeconomic models, is introduced. Following up on recent empirical results, products in the model are heterogeneous in terms of their complexity and differ in their relatedness to each other. The model is used to study theoretical implications of different topological structures underlying product relatedness by conducting simulations with different ‘product spaces’. The analysis suggests that the topological structure of the product space, the assumed relationship between product complexity and centrality as well as the relevance of product complexity in price setting dynamics have significant but nontrivial implications and deserve further attention in evolutionary macroeconomics. To this end, the model presented here may serve as a first step towards a module to be integrated in such a more comprehensive model framework.
    Date: 2020–04
  8. By: Petra Moser
    Abstract: Feeding the world’s growing population is one of the most critical policy challenges for the 21st century. With tightening constraints on water, arable land, and other natural resources, agricultural innovation is quickly becoming the most promising path meet the nutrient needs for future generations. At the same time, the increasing variability in the world’s climate intensifies the need for developing new crops that can tolerate extreme weather. Despite the urgency of this task, there is an active discussion on the returns to public and private spending in agricultural R&D, and many of the world’s wealthier countries have scaled back their share of GDP devoted to agricultural R&D. Dwindling public support leaves universities, which, historically, have been a major source of agricultural innovation, increasingly dependent on funding from industry, with uncertain effects on agricultural research. All of these factors create an urgent need for systematic empirical evidence on the forces that drive research and innovation in agriculture. This book aims to provides such evidence through economic analyses of the sources of agricultural innovation, the challenges of measuring productivity, the role of universities and their interactions with industry, and emerging mechanisms to fund agricultural R&D.
    JEL: N5 O3 O32 O33 Q16 Q18 Q24 Q25 Q54 Q55
    Date: 2020–05

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