nep-ino New Economics Papers
on Innovation
Issue of 2023‒08‒21
eleven papers chosen by
Uwe Cantner, University of Jena

  1. Founder personality and start-up subsidies By Chapman, Gary; Hottenrott, Hanna
  2. Intended and unintended knowledge spillovers in innovation By Kraft, Kornelius; Rammer, Christian
  3. Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data By Serguey Braguinsky; Joonkyu Choi; Yuheng Ding; Karam Jo; Seula Kim
  4. Product market competition, creative destruction and innovation By Griffith, Rachel; Van Reenen, John
  5. Serving the right menu of R&D policy instruments to firms: An analysis of policy mix sequencing By Lenihahn, Helena; Mulligan, Kevin; Perez-Alaniz, Mauricio; Rammer, Christian
  6. The employment impact of AI technologies among AI innovators By Giacomo Damioli; Vincent Van Roy; Daniel Vertesy; Marco Vivarelli
  7. Pandemic effects: Do innovation activities of firms suffer from long-Covid? By Trunschke, Markus; Peters, Bettina; Czarnitzki, Dirk; Rammer, Christian
  8. A time series perspective on income-based tax support for R&D and innovation By Ana Cinta González Cabral; Silvia Appelt; Tibor Hanappi; Fernando Galindo-Rueda; Pierce O’Reilly; Massimo Bucci
  9. Effective tax rates for R&D intangibles By Ana Cinta González Cabral; Tibor Hanappi; Silvia Appelt; Fernando Galindo-Rueda; Pierce O’Reilly
  10. The Profit Motive in the Classroom – Friend or Foe? By Henrekson, Magnus; Elert, Niklas
  11. Ideas Without Scale in French Artificial Intelligence Innovations By Johanna Deperi; Ludovic Dibiaggio; Mohamed Keita; Lionel Nesta

  1. By: Chapman, Gary; Hottenrott, Hanna
    Abstract: Start-up subsidies play an important role in supporting start-up innovation and performance. However, what characteristics help and hinder start-ups to seek start-up subsidies remains unclear. We study whether and how founder personality, as captured by the big five personality traits and entrepreneurial orientation, impacts entrepreneurs' seeking of start-up subsidies. We argue that greater founder openness, extraversion and entrepreneurial orientation enhance seeking of start-up subsidies, while greater founder agreeableness, conscientiousness, and neuroticism inhibits it. Additionally, we argue that entrepreneurial orientation plays a mediating role in the relationship between big five personality traits and start-up subsidies. Drawing on a large multi-sector sample of German start-ups, we find strong evidence for a positive role of founder entrepreneurial orientation. While we find little evidence for a direct effect of a founder's big five personality, we find evidence of an indirect effect through its influence on entrepreneurial orientation.
    Keywords: Start-up subsidies, start-up financing, entrepreneurship policy, entrepreneurial orientation, big five personality traits, venture capital
    JEL: G24 L26 O25 O31
    Date: 2023
  2. By: Kraft, Kornelius; Rammer, Christian
    Abstract: Firms can use different sources of external knowledge for developing and implementing innovations. Some knowledge is provided deliberately by the source and constitutes intended knowledge spillovers, e.g., knowledge disclosed in publications or patent files. Other sources represent unintended knowledge spillovers, such as reverse engineering of technologies or hiring workers from other firms. Based on data from the Community Innovation Survey, this paper analyses the role of different types of intended and unintended knowledge spillovers for innovation output at the firm level. Among intended knowledge spillovers, using knowledge from patents shows the strongest link to innovation output, particularly in case of product innovations with a high degree of novelty (world-first innovations). Knowledge from publications is not associated with a significantly higher innovation output. Among unintended spillovers, both reverse engineering and hiring of workers positively contribute to innovation output of firms, with stronger effects for reverse engineering. Interestingly, there is a strong link between reverse engineering and process innovation output (unit cost reduction), which reflects the fact that firms using this knowledge source operate in a market environment characterized by high price competition, which incentivizes an innovation strategy based on cost efficiency.
    Keywords: Knowledge sources, innovation output, intended knowledge spillovers, unintended knowledge spillovers, reverse engineering
    JEL: O31 O33 D83
    Date: 2023
  3. By: Serguey Braguinsky; Joonkyu Choi; Yuheng Ding; Karam Jo; Seula Kim
    Abstract: We use the U.S. patent data merged with firm-level datasets to establish new facts about the role of mega firms in generating “novel patents”—innovations that introduce new combinations of technology components for the first time. While the importance of mega firms in novel patents had been declining until about 2000, it has strongly rebounded since then. The timing of this turnaround coincided with the ascendance of firms that newly became mega firms in the 2000s, and a shift in the technological contents, characterized by increasing integration of Information and Communication Technology (ICT) and non-ICT components. Mega firms also generate a disproportionately large number of “hits”—novel patents that lead to the largest numbers of follow-on patents (subsequent patents that use the same combinations of technology components as the first novel patent)—and their hits tend to generate more follow-on patents assigned to other firms when compared to hits generated by non-mega firms. Overall, our findings suggest that mega firms play an increasingly important role in generating new technological trajectories in recent years, especially in combining ICT with non-ICT components.
    JEL: L10 O30 O32 O33
    Date: 2023–07
  4. By: Griffith, Rachel; Van Reenen, John
    Abstract: We examine the economic analysis of the relationship between innovation and product market competition. First, we give a brief tour of the intellectual history of the area. Second, we examine how the Aghion-Howitt framework has influenced the development of the literature theoretically and (especially) empirically, with an emphasis on the “inverted U”: the idea that innovation rises and then eventually falls as the intensity of competition increases. Thirdly, we look at recent applications and development of the framework in the areas of competition policy, international trade and structural Industrial Organization.
    Keywords: competition; innovation; creative destruction
    JEL: O31 L13 O32 B20 L40
    Date: 2021–11–29
  5. By: Lenihahn, Helena; Mulligan, Kevin; Perez-Alaniz, Mauricio; Rammer, Christian
    Abstract: The R&D policy instrument mix concept has become increasingly important for understanding how public R&D support drives firm-level R&D. To-date, empirical studies have conceptualised the instrument mix as a static unit, whereby firms receive multiple policy instruments at one point in time. However, firms can also receive multiple instruments in a sequence, over time. While sequencing is well rehearsed heoretically, this remains a major gap in the empirical literature. Our study evaluates, for the first time, how R&D policy instrument mix sequencing impacts firm-level R&D. We construct a unique dataset, containing almost 25, 000 firm-year observations over a 17-year period for Ireland. Our analysis focuses on R&D grants, R&D tax credits, and publicly-supported academic-industry collaborations, and develops two novel approaches to measure R&D policy instrument mix sequencing. Our results suggest that R&D policy instrument mix sequencing is highly effective at driving firm-level R&D, but that some sequences are more effective than others. These findings highlight opportunities to realise superior policy outcomes through targeted sequencing.
    Keywords: Policy mix, Policy instrument mix sequencing, Public R&D support, R&D grant, R&D tax credit, Academic-industry collaboration
    JEL: O25 O30 D04 O38 D22 O31
    Date: 2023
  6. By: Giacomo Damioli; Vincent Van Roy; Daniel Vertesy; Marco Vivarelli
    Abstract: This study supports the labour-friendly nature of product innovation among developers of artificial intelligence (AI) technologies. GMM-SYS estimates on a worldwide longitudinal dataset covering 3, 500 companies that patented inventions related to AI technologies over the period 2000-2016 show a positive and significant impact of AI patent families on employment. The effect is small in magnitude and limited to service sectors and younger firms, which are front-runners of the AI revolution. We also detect some evidence of increasing returns suggesting that innovative companies more focused on AI technologies are those obtaining larger impacts in terms of job creation.
    Keywords: Innovation, technological change, artificial intelligence, patents, employment, job-creation
    Date: 2023–07–12
  7. By: Trunschke, Markus; Peters, Bettina; Czarnitzki, Dirk; Rammer, Christian
    Abstract: The COVID-19 pandemic has affected firms in many economies. Exploiting treatment heterogeneity, we use a difference-in-differences design to causally identify the short-run impact of COVID-19 on innovation spending in 2020 and expected innovation spending in subsequent years. Based on a representative sample of German firms, we find that negatively affected firms substantially reduced innovation expenditure not only in the first year of the pandemic (2020) but also in the two subsequent years, indicating 'Long-Covid' effects on innovation. In 2020, innovation expenditure fell by 4.7 % due to the pandemic. In 2022, innovation spending was even 5.4 % lower compared to the counterfactual scenario without the pandemic. Firms with higher pre-treatment digital capabilities show higher innovation resilience during the pandemic. Moreover, COVID-19 leads to a decrease in innovation spending not only in firms that were strongly negatively affected by the pandemic, but also in those firms that experienced a positive demand shock from the pandemic, presumably to increase production capacity.
    Keywords: COVID-19, innovation, difference-in-differences, economic crisis, resilience
    JEL: O31 O33
    Date: 2023
  8. By: Ana Cinta González Cabral; Silvia Appelt; Tibor Hanappi; Fernando Galindo-Rueda; Pierce O’Reilly; Massimo Bucci
    Abstract: The use of tax incentives that provide preferential tax treatment to the incomes arising from research and development (R&D) and innovation activities, such as intellectual property regimes, has accelerated over the last two decades. The globalisation of R&D together with the greater mobility of intangible income may have contributed to the rise in such incentives to attract and retain R&D and innovation activity while preventing the transfer of taxable base to other countries. This paper documents the changes to the availability and design of income-based tax incentives from 2000 onwards for 48 countries, including all OECD countries and EU countries. Building on this, the paper analyses trends in the generosity of income-based tax support over time by building indicators of effective tax rates that can provide insights into the impact of Action 5 of the OECD/G20 Base Erosion and Profit Shifting project.
    JEL: E22 H25 O34 O38
    Date: 2023–07–27
  9. By: Ana Cinta González Cabral; Tibor Hanappi; Silvia Appelt; Fernando Galindo-Rueda; Pierce O’Reilly
    Abstract: Tax incentives such as intellectual property regimes provide for reduced taxation of the income derived from research, development, and innovation related activities. By doing so, they lower the overall tax burden from investing in certain qualified intangible assets. This paper proposes a methodology to build indicators comparing the effect of income-based tax incentives for R&D and innovation on firms’ incentives to make R&D intangible investments. It provides insights into how such incentives affect firms’ decisions on whether, where and how much to invest in R&D intangibles. These indicators are used to illustrate the extent to which these tax incentives may create potential distortions to firms’ investment, protection and commercialisation decisions. The model is further developed to account for the design changes to such tax incentives introduced by the OECD/G20 Base Erosion and Profit Shifting minimum standard.
    JEL: H25 O34 O38 E22
    Date: 2023–07–27
  10. By: Henrekson, Magnus (Research Institute of Industrial Economics); Elert, Niklas (IFN - Research Institute of Industrial Economics)
    Abstract: Can competition and the existence of profit-seeking actors in the school market improve educational quality? To see cost-efficient, long-term improvements, we identify the school system's capacity for knowledge-enhancing innovation as crucial and explore this question by examining Swedish tax-financed schooling. The Swedish school system was marketized in the early 1990s to an unparalleled degree but has only seen modest (if any) educational gains. This lack of progress is puzzling considering evidence from regular markets that competition and the presence of for-profit actors should spur innovation. Our analysis suggests that these factors are necessary but not sufficient conditions for innovation, tracing the obstacles to innovation in the Swedish school quasi-market to three sub-par institutional conditions. Together, they result in a significant epistemic problem, which impedes the beneficial effects of competition and the profit-motive. First, the view of knowledge (institutionalized in national curricula) does not entrust teachers with a real, knowledge-promoting mission. Second, the design of the grading system makes grades unreliable measures of knowledge, making it difficult for schools to compete and for users to choose along this dimension. Third, the information provided to users is insufficient and overly complicated, meaning user choice is less informed than it should be. Institutional reforms that improve actors' epistemic positions along these margins could improve the situation, paving the way for innovation and long-term improvements.
    Keywords: for-profit schools, innovation, marketized education, quasi-markets, school choice, view of knowledge
    JEL: H42 H44 H75 I22 I28 L88 O31
    Date: 2023–07
  11. By: Johanna Deperi (University of Brescia); Ludovic Dibiaggio (SKEMA Business School); Mohamed Keita (SKEMA Business School); Lionel Nesta (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: Artificial intelligence (AI) is viewed as the next technological revolution. The aim of this Policy Brief is to identify France's strengths and weaknesses in this great race for AI innovation. We characterise France's positioning relative to other key players and make the following observations: 1. Without being a world leader in innovation incorporating artificial intelligence, France is showing moderate but significant activity in this field. 2. France specialises in machine learning, unsupervised learning and probabilistic graphical models, and in developing solutions for the medical sciences, transport and security. 3. The AI value chain in France is poorly integrated, mainly due to a lack of integration in the downstream phases of the innovation chain. 4. The limited presence of French private players in the global AI arena contrasts with the extensive involvement of French public institutions. French public research organisations produce patents with great economic value. 5. Public players are the key actors in French networks for collaboration in patent development, but are not open to international and institutional diversity. In our opinion, France runs the risk of becoming a global AI laboratory located upstream in the AI innovation value chain. As such, it is likely to bear the sunk costs of AI invention, without enjoying the benefits of AI exploitation on a larger scale. In short, our fear is that French AI will be exported to other locations to prosper and grow.
    Date: 2023–06–26

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