health expenditure growth looking beyond the average through decomposition of the full distribution explanations of growth in health expenditures have restricted attention to the mean we explain change throughout the distribution of expenditures providing insight into how expenditure growth and its explanation differ along the distribution we analyse dutch data on actual health expenditures linked to hospital discharge and mortality registers full distribution decomposition delivers findings that would be overlooked by examination of changes in the mean alone the growth rate of hospital expenditures is greatest at the middle of the distribution and is driven mainly by changes in the distributions of determinants pharmaceutical expenditures increase most rapidly at the top of the distribution and are mainly attributable to structural changes including technological progress making treatment of the highest cost cases even more expensive changes in hospital practice styles make the largest contribution of all determinants to increased spending not only on hospital care but also on pharmaceuticals suggesting important spill over effects

one size fits all towards a differentiated regional innovation policy approach innovation has moved to the foreground in regional policy in the last decade concrete policies were shaped by best practice models derived from high tech areas and well performing regions these are often applied in a similar way across many types of regions here an attempt is made to show that there is no ideal model for innovation policy as innovation activities differ strongly between central peripheral and old industrial areas in this paper we analyse different types of regions with respect to their preconditions for innovation networking and innovation barriers based on this classification different policy options and strategies are developed

market share market value and innovation in a panel of british manufacturing firms this paper examines the empirical relationship between technological innovations market share and stock market value new developments in the estimation of dynamic count data models are used to control for unobserved firm specific heterogeneity we find a robust and positive effect of market share on observable headcounts of innovations and patents although increased product market competition in the industry tends to stimulate innovative activity furthermore the impact of innovation on market value is larger for firms with higher market shares we argue that our results are consistent with models where high market share firms have incentives to pre emptively innovate

note and comment keynes plus effective demand and changes in firm level r d an empirical note analysing changes over time in firm level r and d efforts we find that demand growth in a firm s sector of principal activity has a positive influence on changes in a firm s r and d effort confirming schmookler s 1969 demand pull hypothesis this finding points to an aspect of effective demand which has never been directly noticed by keynes or the keynesians such findings are important because of evidence in the literature that a firm s innovation activities are positively related to employment growth export intensity and profits

innovation and productivity across four european countries nber working paper seriesinnovation and productivity across four european countriesrachel griffithelena huergojacques mairessebettina petersworking paper 12722http www nber org papers w12722national bureau of economic research1050 massachusetts avenuecambridge ma 02138december 2006we would like to thank laura abramovsky manuel arellano rupert harrison jordi jaumandreu elizabeth kremp pierre mohnen helen simpson the analysis contained in this paper was fundedby the european commission the esrc and esf under grant res 000 23 0901 and the advancedinstitute of management research aim all errors and omissions remain the responsibility of theauthors the views expressed herein are those of the author s and do not necessarily reflect the viewsof the national bureau of economic research 2006 by rachel griffith elena huergo jacques mairesse and bettina peters all rights reserved short sections of text not to exceed two paragraphs may be quoted without explicit permission providedthat full credit including notice is given to the source

firm size and the nature of innovation within industries the case of process and product r d the effect of firm size on the allocation of r d effort between process and product innovation is examined it is hypothesized that relative to product innovations process innovations are less saleable in disembodied form and spawn less growth this implies that the returns to process r d will depend more on the firm s output at the time it conducts its r d than the returns to product r d incorporating this distinction in a simple model the authors derive and test predictions about how the fraction of r d devoted to process innovation varies with firm size within industries

demand and innovation schmookler re examined schmookler s demand pull hypothesis implying that innovation is a function of market demand has been widely accepted re reading schmookler s invention and economic growth we discover a statistical inadequacy re estimating his cross section results in a different way we find somewhat lower coefficients moreover the direction of causality appears to be far from obvious an independent cross sectional test of the schmookler hypothesis in the netherlands based on r d instead of patent data shows similar results the relationship between indicators of demand and innovation turns out to be generally weaker but in most cases still significant and the results suggest that there is a simultaneous relationship between demand and innovation the latter may be explained by the concept of the innovation multiplier which has implications for macro economic modelling 1 re reading schmookler schmookler s 13 finding of a strong relationship between investment in capital goods users industries and patent applications by capital goods producing sectors has been generally accepted by economists as evidence that patenting is a function of effective demand demand pull hypothesis quite a number of case studies have followed schmookier s seminal work but there have been

research and development with asymmetric firm sizes this article presents a theoretical model of research and development r d competition among firms the goal of the model is to simultaneously explain two empirical observations pertaining to the persistence of dominantfirms small firms make a disproportionate share of major innovations while largefirms tend to spend more in absolute terms on r d than smallfirms do in the model here firms choose investment levels and r d project riskiness in equilibrium a large firm invests more than a smaller firm but by choosing safer r d projects makes fewer major innovations

firm size and r d intensity a re examination using data from the federal trade commission s line of business program and survey measures of technological opportunity and appropriability conditions this paper finds that overall firm size has a very small statistically insignificant effect on business unit r d intensity when either fixed industry effects or measured industry characteristics are taken into account business unit size has no effect on the r d intensity of business units that perform r d but it affects the probability of conducting r d business unit and firm size jointly explain less than one per cent of the variance in r d industry effects explain nearly half the variance two sets of well known hypotheses are associated with the later work of joseph schumpeter the first concerns the effects of market concentration on research and development investment and on innovative performance the second bears on the effects of firm size on r d and innovation in a recent paper levin cohen and mowery 1985 we re examined the first set of hypotheses simple regressions at the line of business level replicated the established findings that both r d intensity and innovative performance first increase and then decrease as industrial concentration rises the effect of concentration however was sharply attenuated when we controlled for interindustry differences in technological opportunity and in the appropriability of returns from new technology our results suggested that it is probably unwarranted to conclude that market concentration favors r d investment and innovation in this paper we investigate the schumpeterian hypothesis that large size is conducive to r d investment this relationship has been studied at least as intensively as the link between concentration and r d but our approach is novel in two respects first using data collected by the federal trade

the role of knowledge in r d efficiency past research has recognized that both demand and capability influence the allocation of r d resources scholars have had an easier time getting a grip on demand than on capability while it has been recognized that knowledge is an important part of capability to date formalization of knowledge and its role in r d activity has been unsatisfactory this paper models the role of knowledge in r d various sources of such knowledge are considered the model throws a different light on analyses that employ a knowledge capital stock and also illuminates the dual private and public nature of technological knowledge

r d and subsidies at the firm level an application of parametric and semi parametric two step selection models this paper analyzes the effects of public r d subsidies on r d expenditure in the german manufacturing sector the focus is on the question whether public r d funding stimulates or crowds out private investment cross sectional data at the firm level is used by apllying parametric and semiparametric selection models it turns out that public funding increases firms r d expenditure altough the magnitude of the treatment effect depends on the assumpions imposed by the particular selection model

r d appropriability opportunity and market structure new evidence on some schumpeterian hypotheses one of the largest bodies of literature in the field of industrial organization is devoted to the interpretation and testing of several hypotheses advanced by joseph schumpeter 1950 concerning innovation and industrial market structure one set of hypotheses focuses on the role of firm size as a determinant of r d spending and the rate of technological advance another set focuses on the effect of market concentration on r d and technological advance in this paper we reexamine the latter set of hypotheses at the industry level using new data on r d appropriability and technological opportunity collected by levin et al 1984 in a survey of r d executives in 130 industries

market versus technology drive in r d internationalization four different patterns of managing research and development research and development are subject to different location drivers the analysis of 1021 r d units each distinguished by its main orientation towards either research or development work reveals that research is concentrated in only five regions worldwide while development is more globally dispersed our research is based on 290 research interviews and database research in 81 technology intensive multinational companies we identify two principal location rationales access to markets and access to science as the principal determinants for four trends that lead to four archetypes of r d internationalization national treasure market driven technology driven and global their organizational evolution is characterized by four trends the model is illustrated with short cases of international r d organization at kubota schindler xerox and glaxo wellcome differences in rd separation seems to contradict this trend we argue that this need not be the case for there are good reasons to maintain some independence between research and development

persistence of innovation in dutch manufacturing is it spurious this paper studies the persistence of innovation and the dynamics of innovation output in dutch manufacturing using firm data from three waves of the community innovation surveys cis pertaining to the periods 1994 1996 1996 1998 and 1998 2000 we estimate by maximum likelihood a dynamic panel data type 2 tobit model accounting for individual effects and handling the initial conditions problem we find that there is no evidence of true persistence in achieving technological product or process innovations while past shares of innovative sales condition albeit to a small extent current shares of innovative sales

in defence of the linear model an essay this essay discusses the strength and weaknesses of the so called linear model lm of innovation it is a reaction to the habit of criticising it as over simplistic mechanistic or simply blatantly wrong we argue that while some criticisms are of course well grounded many others are instead based on loose interpretations and unwarranted assumptions in order to separate the wheat from the chaff this essay first presents a comprehensive description of the linear model and differentiates it from the caricature many refer to second we discuss the main criticisms put forward and argue that many of them are not at all destructive but can be easily accepted within a refined version of the lm third we discuss the policy implications often derived or said to derive from the lm to argue that the lm itself is distinctively policy neutral other assumptions have to be added to justify alternative policy implications

agency costs and innovation abstract stylized facts indicate that small firms are responsible for a disproportionate share of innovative research there are many possible explanations for this fact the paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations it is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes mixing hard to measure activities innovation with easy to measure activities routine is particularly costly since it will either lead to misallocation of attention across tasks or to misallocation of risk larger firms are at a comparative disadvantage in conducting highly innovative research because of the costs associated with managing a heterogeneous set of tasks it is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets both of which are hostile to innovation

on the sources and significance of interindustry differences in technological opportunities abstract the set of technological opportunities in a given industry is one of the fundamental determinants of technical advance in that line of business we examine the concept of technological opportunity and discuss three categories of sources of those opportunities advances in scientific understanding and technique technological advances originating in other industries and in other private and governmental institutions and feedbacks from an industry s own technological advances data from the yale survey on industrial research and development are used to measure the strength of various sources of technological opportunity and to discern interindustry differences in the importance of these sources we find that interindustry differences in the strength and sources of technological opportunities contribute importantly to explanations of cross industry variation in r d intensity and technological advance

the knowledge production of r and d many studies investigate the relationship between r d expenditures as an input and patents as an intermediate product or output of a knowledge production function we suggest that the productivity of research in patent production functions has been underestimated in the literature as scholars typically use information about r d i e the sum of research expenditure and development expenditure due to data availability however in most industries only applied research will lead to patentable knowledge and development happens after the initial research phase that may have led to a patent instead of using data on r d we separate the knowledge creating process into r and d this data stems from r d surveys of belgian firms it turns out that only the r part of r d expenditure has a significant effect on patents and that development expenditure are insignificant thus previous literature relying on r d expenditure suffers from a measurement error such that the coefficient of r d is biased towards zero as r d includes a large fraction of irrelevant expenditure i e development expenditure with respect to patenting

patent protection market uncertainty and r d investment the real options investment theory shows that greater uncertainty about market revenues reduces current r d investment by increasing the value of waiting this paper presents empirical evidence that patent protection mitigates the effect market uncertainty on r d investment

how does probability of innovation change with firm age this paper looks at the probability of introducing innovations by manufacturing firms at different stages of their lives once differences related to activity and size are controlled for we examine how the probability of innovation varies over entry post entry ages and advanced ages of mature firms we also measure the association between exit from the market and pre exit innovation results show that the probability of innovating widely varies by activity and that small size per se broadly reduces the probability of innovation but also that entrant firms tend to present the highest probability of innovation while the oldest firms tend to show lower innovative probabilities some sets of firms with intermediate ages also present a high probability of innovation and exiting firms are clearly associated to lower levels of introducing process innovations

what is behind the recent surge in patenting abstract we investigate the cause of an unprecedented surge of us patenting over the past decade conventional wisdom points to the establishment of the court of appeals of the federal circuit by congress in 1982 we examine whether this institutional change which has benefited patent holders explains the burst in us patenting using both international and domestic data on patent applications and awards we conclude that the evidence is not favorable to the conventional view instead it appears that the jump in patenting reflects an increase in us innovation spurred by changes in the management of research

customer power strategic investment and the failure of leading firms why might firms be regarded as astutely managed at one point yet subsequently lose their positions of industry leadership when faced with technological change we present a model grounded in a study of the world disk drive industry that charts the process through which the demands of a firm s customers shape the allocation of resources in technological innovation a model that links theories of resource dependence and resource allocation we show that established firms led the industry in developing technologies of every sort even radical ones whenever the technologies addressed existing customers needs the same firms failed to develop simpler technologies that initially were only useful in emerging markets because impetus coalesces behind and resources are allocated to programs targeting powerful customers projects targeted at technologies for which no customers yet exist languish for lack of impetus and resources because the rate of technical progress can exceed the performance demanded in a market technologies which initially can only be used in emerging markets later can invade mainstream ones carrying entrant firms to victory over established companies

is demand pulled innovation equally important in different groups of firms previous empirical literature has tested the demand pull hypothesis and found that innovation may be driven by output using a balanced panel of 216 italian manufacturing firms 1995 2000 and checking for the path dependent nature of r d we find a role of sales in inducing r d however the demand pull effect plays a varying role for different sub samples of firms exporting firms liquidity constrained firms not subsidised firms and those not heading a group seem to be sensitive to sales in deciding r d these results have been obtained using a least squares dummy variable corrected estimator a recent panel data technique suitable for small samples

imitation costs and patents an empirical study it has long been recognised that the costs of imitating new products have an important effect on the incentives for innovation in a market economy as arrow i962 and others have pointed out if firms can imitate an innovation at a cost that is substantially below the cost to the innovator of developing the innovation there may be little or no incentive for the innovator to carry out the innovation in their discussions of the innovation process economists frequently have called attention to the major role played by the costs of imitation but there has been little or no attempt to measure these costs to test various hypotheses concerning the factors influencing them or to estimate their effects in this paper we report some findings of what seems to be the first study of this topic in addition we present data regarding the effects of patents on imitation costs and on the rate of innovation

an analysis of the composition of r d spending research and development encompasses a myriad of activities generally research is the primary search for technical or scientific advancement and development is the translation of such advancement into product of process innovations the national science foundation has fostered an even finer breakdown basic research applied research and development in practice however r d is more heterogeneous than these labels imply the research fields associated with basic research include areas in both the physical and biological sciences applied research and development projects relate to product groups as diverse as all the activities in the industrial sector nevertheless most previous empirical studies of the microeconomic aspects of r d have treated r d spending as a single homogeneous activity consequently a generally acceptable set of variables has developed for explaining inter firm levels of r d spending but virtually nothing is known about the determinants of the inter firm composition of r d

long run versus short run decisions r d and market structure in spanish firms abstract i present new econometric evidence on the relation between market structure and r d using data on spanish firms i adopt a different approach from previous studies by distinguishing between long run and short run decisions of firms regarding r d i assume that the long run or strategic decision is whether to conduct r d or not and the short run choice is how much to invest once the firm decides to be innovative i argue that market structure affects long run r d decisions but does not affect short run ones a heckman type selection model is used to test such a relation the results are robust to several specifications and measures of monopoly power

the patent paradox revisited an empirical study of patenting in the u s semiconductor industry 1979 1995 we examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to r d yet the propensity of semiconductor firms to patent has risen dramatically since the mid1980s we explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 u s semiconductor firms during 1979 1995 the results suggest that the 1980s strengthening of u s patent rights spawned patent portfolio races among capital intensive firms but it also facilitated entry by specialized design firms

transport and energy demand in mexico the personal income shock abstract the paper examines the impact on gasoline demand in mexico that may arise from the identified surge in number of private vehicles that occurs in developing countries when a certain income per capita is reached insofar as the country s gdp capita in the year 2000 is extremely close to the threshold value rapid automobile growth scenarios corresponding to different economic growth rates are compared with a business as usual one to exhibit the corresponding surge in gasoline demand to be expected from this personal income shock its occurrence requires to reassess not only the current energy supply policies but also the environmental ones

r d portfolio and market structure this article analyses how firms allocate their resources when they compete for multiple patents in heterogeneous research projects simultaneously a simple model shows that firms resource allocation is biased away from risky and basic research even when imitation is not possible and firms are fully rational therefore a market may lack major innovations despite large aggregate research expenditure and strong patent protection this article also shows that as a market becomes more competitive firms invest relatively less in basic research but more in risky research these results provide a novel explanation for an ambiguous empirical relationship between innovation and market concentration

bias in market r d portfolios abstract based on a simple contest model of product innovation we find that in accordance with conventional wisdom and contrary to much of the previous theoretical literature market competition implies an equilibrium level of risk which is too low from society s standpoint the intuition is that the divergence between private and social marginal benefits from rd and this probability is higher for lower risk projects

firms age process innovation and productivity growth abstract this paper looks directly at the impact of firms age and process innovations on productivity growth a model that specifies productivity growth as an unknown function of these variables is devised and estimated using semiparametric methods results show that firms enter the market experiencing high productivity growth and that above average growth rates tend to last for many years but also that productivity growth of surviving firms converges process innovations at some point then lead to extra productivity growth which also tends to persist somewhat attenuated for a number of years

r d determinants accounting for the differences between research and development the determinants of r d are an important topic of innovation studies the classical schumpeterian hypotheses about the influence of size and market power have been complemented with the role played by industry determinants such as demand pull technological opportunity and appropriability in determining r d investments however r d has always been considered as a whole even though research and development activities differ in many aspects we take advantage of a new panel database of innovative spanish firms pitec to distinguish between research and development efforts of firms we analyze the differentiated role played by traditional r d determinants in driving research and development results show that demand pull and appropriability have a higher effect on development while technological opportunity is more influential for research differences are statistically significant important in magnitude and robust to the use of different indicators for demand pull technological opportunity and appropriability and to several robustness checks

r versus d estimating the differentiated effect of research and development on innovation results r d is considered to be the main source of innovation we argue that r d is too broad a measure including activities differing in purposes culture people management and other features however empirical studies have not analyzed them separately mainly due to the lack of data using firm level data the aim of this paper is to estimate the differentiated effect of research and development on different innovation outputs results show that both research and development activities are important however we find that development activities are more important for product innovation while the effect of research activities is higher on process innovation moreover we analyze differences by technological intensity of the sector when analyzing product and process innovations we find evidence supporting the existence of higher payoffs to development and especially to research in low tech sectors when compared with high tech ones