Innovation Innovation EconomicsEconomics

Class 2Class 2

Shifting Heuristics in the Shifting Heuristics in the Economics of InnovationEconomics of Innovation

Area of specialization in microeconomic Area of specialization in microeconomic theorytheory

Industrial organization, regional Industrial organization, regional economics, theory of the firm, economics, theory of the firm, microeconomics of growthmicroeconomics of growth

Birth of this area of specialization is with Birth of this area of specialization is with the discovery of the residualthe discovery of the residual

Progressive reduction in the power of the Progressive reduction in the power of the technological change as an exogenous technological change as an exogenous process: Metaphor of manna.process: Metaphor of manna.

Notion of technological opportunityNotion of technological opportunity

Origins of the Economics of Origins of the Economics of InnovationInnovation

The concept of residualThe concept of residual Economics of innovation concentrates on Economics of innovation concentrates on

the problem of explaining at the firm the problem of explaining at the firm level the process of growth of output level the process of growth of output whch cannot be explained by increases whch cannot be explained by increases in production factors.in production factors.

Solow (1957) showed that more than Solow (1957) showed that more than 40% of growth in the US economy over 40% of growth in the US economy over 1900-1949 is due to factors other than 1900-1949 is due to factors other than the traditional categories of standart the traditional categories of standart economics.economics.

Manna MetaphorManna Metaphor Manna tradition of analysis introduces a linear Manna tradition of analysis introduces a linear

sequence between scientific discoveries and sequence between scientific discoveries and technology innovations.technology innovations.

Scientist .. İnvention … scientific knowledge … Scientist .. İnvention … scientific knowledge … technological knowledgetechnological knowledge

Kenneth Arrow (1962) showed that technical Kenneth Arrow (1962) showed that technical knowledge has public good characteristics: knowledge has public good characteristics: invisibility, non-excludability, non-tradeability.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 Analysis of technological change as an exogenous

processprocess

Biological Grafts: Biological Grafts: Epidemics and Life CyclesEpidemics and Life Cycles

Analysis of the delays in the adoption of given Analysis of the delays in the adoption of given technology innovationstechnology innovations

DiffusionDiffusion Time distribution of adoptionTime distribution of adoption Life cycle metaphorLife cycle metaphor Major innovations and minor innovationsMajor innovations and minor innovations Role of small firmsRole of small firms Hypothesis: Large firms are necessary for high Hypothesis: Large firms are necessary for high

rates of technological advance to take place (size rates of technological advance to take place (size shapes innovativeness)shapes innovativeness)

Hypothesis: New firms are necessary for high Hypothesis: New firms are necessary for high rates of innovation (age shapes innovativeness) rates of innovation (age shapes innovativeness)

Trajectories and Trajectories and Tecnological PathsTecnological Paths

Three contributions from the Three contributions from the philosophy of science:philosophy of science: Tacit vs. codified knowledgeTacit vs. codified knowledge Limits to rationalityLimits to rationality Entry of the notion of learningEntry of the notion of learning

Learning, cumulative features of Learning, cumulative features of learning, individual learning, learning, individual learning, organizational learningorganizational learning

Manna metaphor --- trajectories Manna metaphor --- trajectories (Kuhn; scientific evolution) (Kuhn; scientific evolution)

Endogenous innovationsEndogenous innovations Localized knowledgeLocalized knowledge Technologcal path dependenceTechnologcal path dependence Local externalitiesLocal externalities

Collective Learning and Collective Learning and NetworksNetworks

Marshallian analysisMarshallian analysis ExternalitiesExternalities SpilloversSpillovers Knowedge interactionsKnowedge interactions

New Growth TheoryNew Growth Theory

Based on:Based on: Distinction between tacit and codified Distinction between tacit and codified

knowledgeknowledge Understanding of technological Understanding of technological

externalitiesexternalities Notion of monopolistic competition as a Notion of monopolistic competition as a

result of introduction of new productsresult of introduction of new products

SummarySummary

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

Key features of a national Key features of a national innovation systeminnovation system

Education and trainingEducation and training Industrial structureIndustrial structure Scientific and technological capabilitiesScientific and technological capabilities S&T strengths and weaknessesS&T strengths and weaknesses Interactions among the various Interactions among the various

components of the innovation systemcomponents of the innovation system Absorption from abroadAbsorption from abroad

All of which can be quantifiedAll of which can be quantified

Population Population in the USA, EU 25 and Japanin the USA, EU 25 and Japan

0

100

200

300

400

500

Milions

USA EU Japan

GDP in the USA, EU 25 and GDP in the USA, EU 25 and JapanJapan

0

2000000

4000000

6000000

8000000

10000000

12000000

USA EU Japan

R&D in the USA, EU 25 and R&D in the USA, EU 25 and JapanJapan

0

0,05

0,1

0,15

0,2

0,25

0,3

Milyonlar

USA EU Japan

Scientific Papers inScientific Papers in the USA, EU 25 and Japan the USA, EU 25 and Japan

0

100000

200000

300000

USA EU Japan

Internet Users inInternet Users in the USA, EU the USA, EU 225 and Japan5 and Japan

0

50000000

100000000

150000000

200000000

USA EU Japan

R&D Intensity - 2001R&D Intensity - 2001

From Lisbon to From Lisbon to BarcelonaBarcelona

Make of Europe the largest knowledge Make of Europe the largest knowledge economy of the worldeconomy of the world

Reach 3 per cent in the ration R&D/GDPReach 3 per cent in the ration R&D/GDP Who has to pay for it? The business sector… Who has to pay for it? The business sector…

which should contribute about 2/3 of the which should contribute about 2/3 of the total expendituretotal expenditure

Jan Tinbergen’s lesson: economic policy is Jan Tinbergen’s lesson: economic policy is about targets and instrumentsabout targets and instruments

Where are the instruments?Where are the instruments? A pragmatic approach: the Kok ReportA pragmatic approach: the Kok Report

How has Europe done in How has Europe done in the last years? Patent the last years? Patent

datadataMean annual

granted patents at

USPTO per million people

2002-03

Mean annual granted

patents at USPTO per

million people 1997-1998

Mean annual rate of

growth from 1996-97 to

2000-01

Mean annual applied patents

at EPO per million people

2002-03

Mean annual applied patents

at EPO per million people

1997-1998

Mean annual rate of

growth from 1996-97 to

2000-01

USA 301 260 3,0% 107 80 5,9%

Japan 277 214 5,3% 135 106 5,1%

EU-15 71 54 5,6% 136 96 7,3%

EU-25 59 45 5,7% 114 80 7,4%

How has Europe done in How has Europe done in the last years? the last years?

Bibliometric dataBibliometric dataNumber of scientific

publication in 2000-01 per million people

Number of scientific publication in 1995-96

per million people

Mean annual rate of growth from 1995-96 to

2000-01

USA 700 759 -1,6%

Japan 444 390 2,6%

EU-15 556 510 1,7%

EU-25 493 448 1,9%

How has Europe done in How has Europe done in the last years? ICT the last years? ICT

expenditureexpenditureICT

expenditure (% of GDP)

2001-02

ICT expenditure (% of GDP)

1996-97

Mean annual rate of growth from 1996-97

to 2001-02

USA 7,2 7,7 -1,7%

Japan 7,5 6,9 2,2%

EU-15 6,5 5,7 3,4%

EU-25 6,5 5,6 4,1%

Which S&T Policy for the Which S&T Policy for the EU?EU?

Typical problem of deepening and Typical problem of deepening and wideningwidening

Widening: to privilege the diffusion Widening: to privilege the diffusion of knowledge in the newcomersof knowledge in the newcomers

Deepening: develop areas of Deepening: develop areas of excellence excellence