Econ 124 & PP 190-5/290-5
Innovation and Technical
Change
Science, invention, and innovation
Prof. Bronwyn H. Hall
UC Berkeley
Part 2 of the course
I.
Innovation fundamentals
A. Science, invention, and innovation
(Fagerberg 2004 for an overview)
B. Diffusion, standards, and network
externalities (after the quiz - Hall 2004)
II. IP system in practice
A. The varieties of IP protection (Ch. 3)
B. Some contemporary IP policy problems
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
2
Further reading
 Nathan Rosenberg (Cambridge University
Press paperbacks)
 Perspectives on Technology
 Inside the Black Box
 Joel Mokyr (Oxford University Press
paperback)
 The Lever of Riches
 Fagerberg, Mowery, and Nelson (eds,
Oxford University Press, forthcoming)
 Handbook of Innovation
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
3
This week (21 and 23 Sept)
 Innovation fundamentals
1. Definitions
2. Determinants
 Level
 Direction
3. The process
 The linear model
 What the linear model leaves out
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
4
Define three key concepts
1. Invention
2. Innovation
3. Diffusion
……..But recognize that the boundaries
between these concepts are fuzzy
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
5
Invention
 creation of an idea of how to do or make
something (usually by an individual)
 “a prescription for a producible product or
operable process so new as not to have been
obvious to one skilled in the art at the time the
idea was put forward" (Schmookler 1960)
 "an increment in the set of total technical
knowledge of a given society" (Mokyr 1990)
 “the first occurrence of an idea for a new
product or process” (Fagerberg 2004)
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
6
Innovation
 making an idea for a new product or process
real, putting it into practice
 usually performed by a team or company (requires
financial resources as well as a range of skills)
 “the act of being the first to produce a new good or
service or the first to use a new method or input”
(Schmookler 1966)
 “the first commercialization of an idea” (Fagerberg
2004)
 “A new idea, method, or device. The act of creating a
new product or process. Includes invention as well as
the work required to bring an idea or concept into final
form” (McNealy, Sun website, 2004)
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
7
Diffusion
 the spread of a new product or
process throughout society or at least
throughout the relevant part of
society
 the process that enables an
innovation to contribute to economic
growth and welfare
NB: Some researchers refer to any adopter of
a new technology as an “innovator.” In this
course we will not use this wording.
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
8
Determinants of innovation
 Economic factors (supply and demand) are
important for an understanding of the rate
and direction of technical change
 As in the case of ordinary goods like milk or
shoes
 Understanding these helps in designing policy
levers
 Chance and unpredictability can be
important in the process
 There are forward and backward feedbacks
throughout the process of innovation
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
9
Innovation supply
Supply of an innovation determined by
 state of the relevant scientific and
technological knowledge (technological
opportunity)
 cost and availability of inputs to
innovation (trained technicians,
knowledge workers, appropriate
equipment)
 ability to capture the increased profit
from innovation (appropriability)
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
10
Innovation demand
Demand for a potential innovation depends
on
 Amount of cost reduction from that
innovation (process innovation; new
sources of supply; organizational
change)
 Consumer or producer benefit from
something new (product innovation)
 Consumer or producer benefit from
improvement in an existing good
(incremental product innovation)
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
11
Direction of innovation - supply
 Lack of technological opportunity
 Science/technology not always available
 Leonardo da Vinci’s airplane
 Research on nanotechnology in 1910s, but lack
of instrumentation – waited for electron
microscope to make progress
 Many wants unsatisfied for an extended period
of time
 cure for AIDS
 Malaria vaccine
 lightweight electric batteries
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
12
Direction of innovation - supply
 Treatment of diabetes held up by
complexity of understanding insulin
 needed crystallography to understand
complex organic molecules
 Historically, mechanics & metals progressed
faster because inorganic chemistry simpler
 Appropriability considerations
 Lack of patents directs invention towards
secrecy (Moser)
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
13
Direction of innovation - demand
 “Inducement mechanisms and
focusing devices” (Rosenberg)
 Importance of bottlenecks in choice of
innovative activity - “compulsive
sequences,” where there is an imperative
need for improvement
 Manufacturing feeds back to innovation
 Shocks to relative prices of inputs
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
14
Examples of imbalance
 Oil tube drill
 for the inside of bicycle hubs because
outside forming tool too fast for
conventional drill, so manufacturing
sequence out of step
 Development of laptop computer
 Focus on cheaper, lighter color screens
 Lighter, longer-lived rechargeable
batteries
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
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Relative factor prices
Sharp changes in relative prices
 Focuses attention on particular costs
 firms cannot innovate in all directions at once
 Oil price shocks and fuel-efficient cars
 Threat or actual withdrawal of
 labor
 strikes in mid-19th C Britain lead to labor-saving
machines
 source of supply
 Cotton to UK in U.S. Civil War (economizing on inputs)
 US dye industry developed to replace German in WW I
 Southeast Asian rubber during WW II – leads to
creation of synthetic rubber
Fall 2004 (c) B H Hall
Econ 124/PP 190-5/290-5
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