nep-ino New Economics Papers
on Innovation
Issue of 2021‒06‒28
fourteen papers chosen by
Uwe Cantner
University of Jena

  1. Crisis Innovation Policy from World War II to COVID-19 By Daniel P. Gross; Bhaven N. Sampat
  2. Taxation and Innovation: What Do We Know? By Akcigit, Ufuk; Stantcheva, Stefanie
  3. Technological breakthroughs in European regions: the role of related and unrelated combinations By Ron Boschma; Ernest Miguélez; Rosina Moreno; Diego B. Ocampo-Corrales
  4. Bankrupt Innovative Firms By Song Ma; Joy Tianjiao Tong; Wei Wang
  5. Targeting R&D intensity in Finnish innovation policy By Matthias Deschryvere; Kai Husso; Arho Suominen
  6. The impact of Covid-19 and of the earlier crisis on firms’ innovation and growth: a comparative analysis By Anabela Santos; Karel Haegeman; Pietro Moncada-Paternó-Castello
  7. Induced innovation and international environmental agreements: evidence from the Ozone regime By Dugoua, Eugenie
  8. Market Size and Research: Evidence from the Pharmaceutical Industry By Dennis Byrski; Fabian Gaessler; Matthew J. Higgins
  9. The Impact of Intellectual Property Types on the Performance of Business Start-ups in the USA By Bernadette Power; Gavin C Reid
  10. Induced Technical Change and Income Distribution: the Role of Public R&D and Labor Market Institutions By Zamparelli, Luca
  11. Entrepreneurship During the COVID-19 Pandemic: Evidence from the Business Formation Statistics By John C. Haltiwanger
  12. An Evolutionary Analysis of Transformative Change in LDCs: the cases of Kenya and Rwanda By Jan Fagerberg; Erika Kraemer-Mbula; Edward Lorenz
  13. Funding Risky Research By Chiara Franzoni; Paula Stephan; Reinhilde Veugelers
  14. Investment Committee Voting and the Financing of Innovation By Andrey Malenko; Ramana Nanda; Matthew Rhodes-Kropf; Savitar Sundaresan

  1. By: Daniel P. Gross; Bhaven N. Sampat
    Abstract: Innovation policy can be a crucial component of governments' responses to crises. Because speed is a paramount objective, crisis innovation may also require different policy tools than innovation policy in non-crisis times, raising distinct questions and tradeoffs. In this paper, we survey the U.S. policy response to two crises where innovation was crucial to a resolution: World War II and the COVID-19 pandemic. After providing an overview of the main elements of each of these efforts, we discuss how they compare, and to what degree their differences reflect the nature of the central innovation policy problems and the maturity of the U.S. innovation system. We then explore four key tradeoffs for crisis innovation policy---top-down vs. bottom-up priority setting, concentrated vs. distributed funding, patent policy, and managing disruptions to the innovation system---and provide a logic for policy choices. Finally, we describe the longer-run impacts of the World War II effort and use these lessons to speculate on the potential long-run effects of the COVID-19 crisis on innovation policy and the innovation system.
    JEL: H12 H56 I18 N42 N72 O31 O32 O38
    Date: 2021–06
  2. By: Akcigit, Ufuk; Stantcheva, Stefanie
    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.
    Keywords: entrepreneurship; growth; Innovation; inventors; patents; productivity; R&D; taxation
    JEL: H20 O30 O38 O43
    Date: 2020–05
  3. By: Ron Boschma; Ernest Miguélez; Rosina Moreno; Diego B. Ocampo-Corrales
    Abstract: This paper analyzes if the emergence and occurrence of breakthrough technologies in 277 European regions in the period 1981 to 2010 is related to the existing technological portfolio of regions. The study shows that, by far, most combinations breakthrough inventions make are between related technologies: almost no breakthrough patent makes combinations between unrelated combinations only. We also find that breakthrough inventions primarily combine and cite technological classes that are present in the region. Regressions show that the occurrence of breakthrough patents in a technology in a region is positively affected by the local stock of technologies that is related to such technology, but we do not find such an effect for the local stock of unrelated technologies, in contrast to studies that suggest otherwise. However, the region’s ability to enter new breakthrough inventions in a technology relies on the combination of knowledge that is both related and unrelated to such technology.
    Keywords: relatedness, unrelatedness, technological breakthroughs, regional diversification, European regions
    JEL: O18 O31 O33 R11
    Date: 2021
  4. By: Song Ma; Joy Tianjiao Tong; Wei Wang
    Abstract: This paper studies how innovative firms manage their innovation portfolios after filing for Chapter 11 reorganization using three decades of data. We find that they sell off core (i.e., technologically critical and valuable), rather than peripheral, patents in bankruptcy. The selling pattern is driven almost entirely by firms with greater use of secured debt, and the mechanism is secured creditors exercising their control rights on collateralized patents. Creditor-driven patent sales in bankruptcy have implications for technology diffusion—the sold patents diffuse more slowly under new ownership and are more likely to be purchased by patent trolls.
    JEL: G33 O32 O34
    Date: 2021–05
  5. By: Matthias Deschryvere (VTT Technical Research Centre of Finland); Kai Husso (Ministry of Economic Affairs and Employment of Finland); Arho Suominen (VTT Technical Research Centre of Finland)
    Abstract: Finland has been setting research and development (R&D) intensity targets for almost 50 years. This paper explores the Finnish national policy experience in fostering public and private investments in R&D. Three key insights are the following: a) a systemic and integrated policy approach needs an impactful co-ordination and governance mechanism; b) a balanced innovation system with well-working joint public-private partnership efforts and mechanisms will do better in absorbing shocks; c) a key strategy to absorb shocks to the economy and society is to invest in long-term capabilities. This study also provides an overview of the factors influencing the level of R&D intensity. The current 4% target to be reached by 2030 was set in 2019 but thus far relatively few policy actions have been introduced to operationalise it. With these dynamics and uncertainty, it remains to be seen if the target will be reached by 2030.
    Keywords: innovation policy, R&D intensity targets, R&D policy, research and development (R&D)
    JEL: L52 O30 O38
    Date: 2021–06–28
  6. By: Anabela Santos (European Commission - JRC); Karel Haegeman (European Commission - JRC); Pietro Moncada-Paternó-Castello (European Commission - JRC)
    Abstract: Using the results of the Survey on the Access to Finance of Enterprises (2009 to 2020 editions), this paper aims to assess the effect of Covid-19 pandemic on the probabilities of firm to innovate and grow and to compare their likelihood with that of the previous downturn. To control for a possible endogeneity bias as part of innovation decisions a Recursive Bivariate Probit Model is used. Results show that the probabilities of firms to innovate and grow are lower in 2020 (Covid-19 crisis) than in 2009 (financial crisis). The economic performance of innovative firms was also affected by the pandemic, but considerably less than the performance of non-innovative ones. Changes in the innovation patterns are also observed. Possible implications for decision-makers are derived.
    Keywords: Innovation; Growth; COVID-19; Europe.
    JEL: O31 O12 O52
    Date: 2021–06
  7. By: Dugoua, Eugenie
    Abstract: Global environmental problems are some of the most pressing issues that humanity is facing. There are few examples of success at resolving them; the fight to protect the ozone layer is one of them. This paper provides evidence that the Montreal Protocol’s restrictions on chlorofluorocarbons ( CFCs) triggered a substantial increase in research and innovation on alternatives to ozone-depleting molecules. I compare CFC substitute molecules to molecules that have similar uses but are unrelated to ozone depletion. After the signing of the agreement, patents on CFC substitutes increased by 400% and scientific articles by 500% compared to the control group. These findings suggest that agreements can indeed trigger the development of technological solutions, thereby improving the benefit-cost equation of environmental protection
    JEL: O55 O31 O33 F53
    Date: 2021–06
  8. By: Dennis Byrski; Fabian Gaessler; Matthew J. Higgins
    Abstract: Prior literature has established a link between changes in market size and pharmaceutical innovation; whether a link exists with scientific research remains an open question. If upstream research is not responsive to these changes, the kinds of scientific discoveries that flow into future drug development could be disconnected from downstream demand. We explore this question by exploiting the effects of quasi-experimental variation in market size introduced by Medicare Part D. We find no causal relationship between market size and biomedical research in the decade following the implementation of Medicare Part D. While many factors have been shown to motivate scientists to conduct research, this result suggests that changes in market size provide no such incentive. We do find, however, limited support for a response by corporate scientists conducting applied research. Implications for pharmaceutical innovation policy are discussed.
    JEL: I13 I18 L65 O31 O32
    Date: 2021–05
  9. By: Bernadette Power; Gavin C Reid
    Abstract: Using a large, longitudinal panel (2004-2011) of USA start-ups this paper shows the extent to which IP types (e.g. trademarks, patents, copyrights, outward licensing) enhance multidimensional performance. An ordered probit analysis (with random effects), corrected for sample selection bias, estimates performance to derive the following conclusions. First, trademarks and out-licensing IP types increase a firm’s chances of being a high performer, confirming the importance of certain forms of IP protection for start-ups. Second, patenting significantly reduces the chances of being a high performer, suggesting patenting has limited performance benefits for start-ups. Third, few performance synergies exist in the joint use of IP types, suggesting that strong complementarities among IP types are limited. While out-licensing patents and out-licensing copyrights certainly increase performance, out-licensing patents and out-licensing trademarks actually diminish it. Further, registering more trademarks and outlicensing more trademarks also diminishes performance, suggesting start-up firms should keep trademarks in-house.
    Keywords: Performance, firm start-ups, intellectual property, out-licensing, complementarities
    JEL: C55 D22 L25 O34
    Date: 2021–04
  10. By: Zamparelli, Luca
    Abstract: This paper investigates the role of public R&D and labor market institutions in a labor constrained Classical growth model with induced technical change. It assumes that the innovation possibility frontier is a positive function of public R&D investment and a negative function of a measure of conflict in the labor market. It shows that while a larger size of the public sector and more peaceful industrial relations unequivocally boost long run growth, the effect on income distribution is not obvious. It depends on how the state of the labor market and public research affect the trade-off between labor and capital productivity growth, that is the slope of the innovation possibility frontier. While it appears plausible that a stronger workers' bargaining power may increase the wage share, higher public R&D investments will not affect income distribution unless it is biased toward either labor- or capital- saving innovations.
    Keywords: induced innovation, public R&D, labor market institutions
    JEL: D33 O31
    Date: 2021–06–23
  11. By: John C. Haltiwanger
    Abstract: Applications for new businesses from the U.S. Census Bureau’s monthly and weekly Business Formation Statistics (BFS) fell substantially in the early stages of the pandemic but then surged in the second half of 2020. This surge has continued through May 2021. The pace of applications since mid-2020 is the highest on record (earliest data available is 2004). The large increase in applications is for both likely new employers and nonemployers. These patterns contrast sharply with those in the Great Recession when applications for likely new employer businesses and in turn actual startups of employer businesses declined sharply and persistently. The surge in new business applications has been uneven across sectors. Ten 3-digit NAICS industries account for 75% of the surge. Dominant industries include Nonstore Retail (alone accounting for 33% of the surge), Professional, Scientific and Technical Services, Truck Transportation, and Accommodation and Food Services. Given that existing small businesses in Retail Trade and Accommodation and Food Services have suffered especially large declines in the pandemic, these patterns are consistent with restructuring induced by the pandemic.
    JEL: E32 L25 L26
    Date: 2021–06
  12. By: Jan Fagerberg (INTRANSIT, Centre for Technology, Innovation and Culture (TIK), University of Oslo); Erika Kraemer-Mbula (DST/NRF/Newton Fund Trilateral Chair in Transformative Innovation, the Fourth Industrial Revolution and Sustainable Development, College of Business and Economics, University of Johannesburg); Edward Lorenz (College of Business and Economics, University of Johannesburg and Aalborg University Business School, Aalborg University)
    Abstract: This paper draws on insights from evolutionary economics to enrich our understanding of the prospects for development in low-income countries. Drawing on analysis Freeman and Perez (1988) of the basis for changes in technological economic paradigms, the paper argues that the current process of digitalization in combination with developments in renewable energy are providing a ‘window of opportunity’ for accelerated economic growth and catch-up in low-income countries. The argument is illustrated with reference to the cases of Kenya and Rwanda both which stand out for their governments’ foresight in pursuing policies designed to promote a transformation based on the opportunities offered by the revolutionary changes in technology from the early to mid-2000s. Transformative change requires innovations in business models, in products and process and in modes of marketing and distribution. Drawing on innovation systems theory, the paper considers to what extent the problems firms face in Kenya and Rwanda in accessing resources in terms of needed knowledge, skills and finance have constrained the development of their innovation capabilities. The paper concludes by assessing the policies governments have enacted in attempting to respond to these constraints.
    Date: 2021–06
  13. By: Chiara Franzoni; Paula Stephan; Reinhilde Veugelers
    Abstract: The speed with which Covid-19 vaccines were developed and their high-performance underlines how much society depends on the pace of scientific research and how effective science can be. This is especially the case for vaccines based on the new designer mRNA technology. We draw on this exceptional moment for science to reflect on whether the government funding system is sufficiently supportive of research needed for key breakthroughs, and whether the system of funding encourages sufficient risk-taking to induce scientists to explore transformative research paths. We begin with a discussion of the challenges faced by scientists who did pioneering-research related to mRNA-based drugs in getting support for research. We describe measures developed to distinguish risky from non-risky research and their citation footprint. We review empirical work suggesting that funding is biased against risky research and provide a framework for thinking about why principal investigators, panelists and funding agencies may eschew risky research. We close with a discussion of interventions that government agencies and universities could follow if they wish to avoid a bias against risk.
    JEL: I23 O31 O38
    Date: 2021–06
  14. By: Andrey Malenko (University of Michigan); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit); Matthew Rhodes-Kropf (Massachusetts Institute of Technology); Savitar Sundaresan (Imperial College London)
    Abstract: We provide novel evidence on voting practices used by the investment committees of prominent venture capital investors in the U.S. A substantial share of these VCs use a voting rule for seed and early stage investments where a single `champion' is sufficient for the entire partnership to make an investment, even if other members are not as favorable. However, the same VCs migrate to more conventional `majority' or `unanimous' voting rules for their later stage investments. We show theoretically that a `champions' model can emerge as the optimal voting rule when outcomes follow a sub-exponential distribution (resembling the investments of early stage VC), but also requires that partners have sufficiently common objectives to prevent strategic overchampioning for pet projects. More traditional voting rules are robust to overchampioning but are more likely to systematically miss the best early stage investments.
    Date: 2021–06

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