funda10 Flashcards
(18 cards)
What makes innovation valuable to economic growth, and how do policies support it?
Innovation as a Public Good:
Non-excludable (Once created, others can use it without exclusion (e.g., ideas spread through knowledge spillovers)) and non-rival (One entity’s use of innovation doesn’t diminish its availability to others.).
Drives technological progress and future innovations.
Externalities: Creates knowledge spillovers, justifying policies like R&D tax credits, subsidies, and grants.
Impact on Growth: Innovation drives the technological frontier forward, enabling future innovations.
Increasing Returns of Ideas: Ideas multiply their value as they combine with existing knowledge, fostering more innovation.
What are knowledge spillovers, and why do they matter?
Definition: Unintentional transfer of knowledge from one firm/entity to another.
Examples: Imitation, informal talks, espionage, and worker mobility.
Why Important?
Boosts productivity of other firms for free.
Drives strategic, location, and policy decisions (e.g., patents, R&D subsidies).
Examples: High-tech clusters like Silicon Valley foster spillovers through proximity and collaboration.
How do high-tech clusters amplify knowledge spillovers?
Clusters Amplify Innovation:
Concentrated knowledge spillovers lead to higher productivity.
Example: Enrico Moretti (2021) found 10 major clusters (e.g., Silicon Valley) dominate U.S. innovation in key fields.
Data Insight (USPTO):
Patent data provides information on inventors, assignees, and citations, revealing patterns of spillovers and collaboration.
Why Clusters Matter: Proximity fosters the exchange of ideas, technologies, and skills, making these areas hubs of innovation.
How do high-tech clusters affect the productivity of top inventors?
High-tech clusters, such as Silicon Valley, significantly increase the productivity of inventors. Moving to a city with a large cluster of inventors in the same field leads to a substantial rise in the number and quality of patents produced. For example, in 2007, the total number of patents in computer science in the U.S. would have been 13.34% lower if computer scientists were evenly distributed across cities. This is due to increased knowledge spillovers, collaboration, and access to specialized resources in clusters.
How can we test for localized knowledge spillovers using patent data?
We can test for localized knowledge spillovers by examining patent citations. If patents from a certain region cite other patents from the same region, it suggests localized knowledge transfer. For example, if 70% of citations in Lombardy came from patents in Lombardy itself, indicating strong spillovers. By comparing the geographic proximity of citing patents to control patents, we can confirm the extent of local knowledge spillovers.
What role does labor mobility play in localized knowledge spillovers?
Labor mobility significantly contributes to localized knowledge spillovers. Inventors who move between regions carry knowledge with them, fostering innovation in new locations. Silicon Valley has a high level of intra-regional mobility, which helps facilitate knowledge transfer and enhances the localized spillover effect. Almeida and Kogut (1999) found that patents citing influential patents in the semiconductor industry were more likely to come from the same geographical area, especially in regions with high inventor mobility.
What is the challenge of knowledge spillovers in innovation?
Ideas are non-rivalrous (multiple people can use the same idea), but the products based on those ideas are rivalrous (can only be sold to one at a time).
Firms develop ideas and recover investment in R&D through product sales, but what matters for them is value capture, not just value creation.
What is the difference between basic research and applied research?
Basic Research: Aims to increase understanding without immediate commercial goals. It is uncertain and foundational for future innovations.
Applied Research: Focuses on solving specific, practical problems with immediate commercial applications.
Development (D) involves applying knowledge to create useful products or technologies.
Why do firms invest in science and research?
Attract key talent: Firms invest in science to recruit and retain top researchers (“star scientists”).
Absorptive capacity: Firms increase their ability to integrate and use new knowledge.
First-mover advantage: Investment in research allows firms to gain a competitive edge by being the first to apply new technologies.
How do scientists balance salary and the opportunity to conduct basic research?
Scientists often prefer basic research: Many are willing to accept lower salaries in exchange for the freedom to engage in fundamental research and publish their findings.
A study showed that scientists in biotechnology would take up to 20% less salary for the opportunity to work in a more research-driven environment.
What is Absorptive Capacity and Why is it Important for Firms?
Absorptive capacity refers to a firm’s ability to recognize, assimilate, and apply new external knowledge to advance its innovation and competitive position. It enables firms to leverage scientific developments, new technologies, and external research, effectively turning them into valuable internal assets. Without adequate absorptive capacity, a firm may fail to translate external knowledge into practical innovation, limiting its growth and ability to compete.
Key Elements:
Recognition: Identifying external knowledge that is useful.
Assimilation: Integrating this knowledge within the firm’s existing processes.
Application: Using the assimilated knowledge to enhance the firm’s capabilities.
Why is simple exposure to external knowledge (like reading journals) insufficient for firms?
Simple exposure to knowledge (e.g., reading journals) is insufficient because firms need a structured system to absorb and apply that knowledge effectively. Without an active investment in absorptive capacity, firms cannot decode complex external information and make it actionable. Absorptive capacity involves building the necessary internal capabilities, such as expertise, infrastructure, and processes, to truly integrate and use external knowledge to create value.
Example: A firm may have access to cutting-edge academic research but cannot utilize it without the right technical expertise or research infrastructure to make sense of and apply that knowledge.
When is it critical for firms to invest in building absorptive capacity?
Firms must invest in absorptive capacity under the following conditions:
Complexity of Knowledge: The external knowledge is intricate and requires deep understanding to be applied effectively (e.g., in biotech or AI).
Need for Ongoing Knowledge Assimilation: The firm must continuously absorb new knowledge to remain competitive, particularly in rapidly evolving fields or industries reliant on cutting-edge science.
High Knowledge Density: Sectors with concentrated, specialized knowledge (e.g., quantum computing, pharmaceuticals) require firms to develop absorptive capacity to access and integrate breakthroughs.
Strategic Alignment with Innovation: To exploit breakthroughs, firms must have the resources (financial, human capital) to absorb knowledge and apply it to product development, process improvement, or new business models.
Example: In high-tech industries, firms often acquire deep-tech startups to access knowledge and boost their absorptive capacity.
How do knowledge spillovers influence a firm’s R&D incentives and absorptive capacity?
Knowledge spillovers occur when firms unintentionally benefit from the R&D and innovations of other firms. While these spillovers can reduce a firm’s direct incentives to invest in R&D (since they don’t capture the full benefits), they also increase the incentive for firms with high absorptive capacity to engage in R&D investment. This is because:
More Spillovers = Greater Knowledge Pool: Firms can absorb and apply a broader range of external knowledge, making further R&D more productive.
Increased Absorptive Capacity = More R&D Investment: Firms that can effectively absorb external knowledge are more likely to invest in R&D to take advantage of spillovers, especially when they can convert spillovers into valuable innovations.
Example: A pharmaceutical firm might invest heavily in R&D if it has the absorptive capacity to absorb both spillovers from academic research and developments from competitors.
Why are patents not always a perfect measure of invention?
Patents may not fully capture a company’s inventive activity because they depend on factors like “patentability.” Other influences, such as market conditions, competition, and technological feasibility, also play a role in determining whether an innovation becomes a patent. Therefore, patents should be considered alongside other indicators of innovation.
What is the “use of science” in the context of corporate R&D?
The “use of science” refers to how companies incorporate external scientific research into their innovations, measured by citations from patents to scientific publications (non-patent literature, NPL). These citations indicate how much a company is building upon existing scientific knowledge in its R&D processes.
What does a positive coefficient for internal science in a company’s R&D investment indicate?
A positive coefficient for internal science means that firms that cite their own scientific research in their patents are more likely to invest in basic scientific research. These firms tend to produce more high-quality scientific publications and continue to innovate at higher levels.
What is the relationship between knowledge spillovers and corporate investment in scientific research?
Knowledge spillovers, where a firm’s research is used by rivals, reduce the firm’s incentives to invest in further scientific research. Rival companies can freely use the research, leading to fewer benefits for the original innovator. This results in a negative impact on the firm’s R&D investment.
