Innovation Economics Class 2

Shifting Heuristics in the Economics of Innovation Area of specialization in microeconomic theory Area of specialization in microeconomic theory Industrial organization, regional economics, theory of the firm, microeconomics of growth Industrial organization, regional economics, theory of the firm, microeconomics of growth Birth of this area of specialization is with the discovery of the residual Birth of this area of specialization is with the discovery of the residual Progressive reduction in the power of the technological change as an exogenous process: Metaphor of manna. Progressive reduction in the power of the technological change as an exogenous process: Metaphor of manna. Notion of technological opportunity Notion of technological opportunity

Origins of the Economics of Innovation The concept of residual The concept of residual Economics of innovation concentrates on the problem of explaining at the firm level the process of growth of output whch cannot be explained by increases in production factors. Economics of innovation concentrates on the problem of explaining at the firm level the process of growth of output whch cannot be explained by increases in production factors. Solow (1957) showed that more than 40% of growth in the US economy over is due to factors other than the traditional categories of standart economics. Solow (1957) showed that more than 40% of growth in the US economy over is due to factors other than the traditional categories of standart economics.

Manna Metaphor Manna tradition of analysis introduces a linear sequence between scientific discoveries and technology innovations. Manna tradition of analysis introduces a linear sequence between scientific discoveries and technology innovations. Scientist.. İnvention … scientific knowledge … technological knowledge Scientist.. İnvention … scientific knowledge … technological knowledge Kenneth Arrow (1962) showed that technical knowledge has public good characteristics: invisibility, non-excludability, non- tradeability. Kenneth Arrow (1962) showed that technical knowledge has public good characteristics: invisibility, non-excludability, non- tradeability. Market provision of efficient level of public good?? Market provision of efficient level of public good?? Role of the government?? Role of the government?? Analysis of technological change as an exogenous process Analysis of technological change as an exogenous process

Biological Grafts: Epidemics and Life Cycles Analysis of the delays in the adoption of given technology innovations Analysis of the delays in the adoption of given technology innovations Diffusion Diffusion Time distribution of adoption Time distribution of adoption Life cycle metaphor Life cycle metaphor Major innovations and minor innovations Major innovations and minor innovations Role of small firms Role of small firms Hypothesis: Large firms are necessary for high rates of technological advance to take place (size shapes innovativeness) Hypothesis: Large firms are necessary for high rates of technological advance to take place (size shapes innovativeness) Hypothesis: New firms are necessary for high rates of innovation (age shapes innovativeness) Hypothesis: New firms are necessary for high rates of innovation (age shapes innovativeness)

Trajectories and Tecnological Paths Three contributions from the philosophy of science: Three contributions from the philosophy of science: Tacit vs. codified knowledge Tacit vs. codified knowledge Limits to rationality Limits to rationality Entry of the notion of learning Entry of the notion of learning Learning, cumulative features of learning, individual learning, organizational learning Learning, cumulative features of learning, individual learning, organizational learning Manna metaphor --- trajectories (Kuhn; scientific evolution) Manna metaphor --- trajectories (Kuhn; scientific evolution)

Endogenous innovations Endogenous innovations Localized knowledge Localized knowledge Technologcal path dependence Technologcal path dependence Local externalities Local externalities

Collective Learning and Networks Marshallian analysis Marshallian analysis Externalities Externalities Spillovers Spillovers Knowedge interactions Knowedge interactions

New Growth Theory Based on: Based on: Distinction between tacit and codified knowledge Distinction between tacit and codified knowledge Understanding of technological externalities Understanding of technological externalities Notion of monopolistic competition as a result of introduction of new products Notion of monopolistic competition as a result of introduction of new products

Summary Manna --- Product life cycle and trajectories --- network approach Manna --- Product life cycle and trajectories --- network approach

Key features of a national innovation system Education and training Education and training Industrial structure Industrial structure Scientific and technological capabilities Scientific and technological capabilities S&T strengths and weaknesses S&T strengths and weaknesses Interactions among the various components of the innovation system Interactions among the various components of the innovation system Absorption from abroad Absorption from abroad All of which can be quantified

Population in the USA, EU 25 and Japan

GDP in the USA, EU 25 and Japan

R&D in the USA, EU 25 and Japan

Scientific Papers in the USA, EU 25 and Japan

Internet Users in the USA, EU 25 and Japan

R&D Intensity

From Lisbon to Barcelona Make of Europe the largest knowledge economy of the world Make of Europe the largest knowledge economy of the world Reach 3 per cent in the ration R&D/GDP Reach 3 per cent in the ration R&D/GDP Who has to pay for it? The business sector… which should contribute about 2/3 of the total expenditure Who has to pay for it? The business sector… which should contribute about 2/3 of the total expenditure Jan Tinbergen’s lesson: economic policy is about targets and instruments Jan Tinbergen’s lesson: economic policy is about targets and instruments Where are the instruments? Where are the instruments? A pragmatic approach: the Kok Report A pragmatic approach: the Kok Report

How has Europe done in the last years? Patent data

How has Europe done in the last years? Bibliometric data

How has Europe done in the last years? ICT expenditure

Which S&T Policy for the EU? Typical problem of deepening and widening Widening: to privilege the diffusion of knowledge in the newcomers Widening: to privilege the diffusion of knowledge in the newcomers Deepening: develop areas of excellence Deepening: develop areas of excellence