The Origin of Technical Change; Knowledge
Generation, Opportunities and Entrepreneurship*
Mark Sanders
Max Planck Institute for Research on Economic Systems
Entrepreneurship, Economic Growth and Public Policy
Kahlaische Strasse 10
D-07745, Jena, Germany
sanders@mpiew-jena.mpg.de
Workshop The Nature of Opportunity, March 2005
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 1 of 15
Motivation
Growth Theory as it is
Opportunity and the Source of Growth
The Structure of Scientific (R)evolution
Growth Theory as it will be
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 2 of 15
Growth Theory as it is
Rents in Product Markets
Effort in R&D
New Products
Old Ideas
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 3 of 15
Introducing Opportunity
Rents in Product Markets
Entrepreneurs
Knowledge Filter
New Products
Knowledge
??
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
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The Source of Growth
Pieces of Knowledge
+ E. Vision and Talent=
Commercial Opportunity
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 5 of 15
Scientific (R)evolution
Science generates the Pieces of Knowledge
What drives Scientists to do so?
Paradigms
Normal Science vs. Scientific Crisis
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 6 of 15
Scientific (R)evolution
A Model of Scientific Activity
n  nf (R)
n  (nP  n)f (R)
where function f(.) is the knowledge filter and nP-n is the
universe of opportunities. New products is then proportional
to the number of unexploited opportunities and depends on
the level of entrepreneurial R&D. This activity is profit driven.
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 7 of 15
Scientific (R)evolution
A Model of Scientific Activity
nP  g(K t ,...)
g' (Kt )  0
where function g(.) captures the role of entrepreneurial vision
and talent. Opportunities are recognized and combine a
number of scientific ideas. It is therefore positive in the stock
of scientific ideas.
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 8 of 15
Scientific (R)evolution
Normal Scientific Activity
K it  (Kt  K I 0 )α f (Sit )
A it  (Kt  K I 0 )β f (Sit )
Pr(P I t )  ψ( At / Kt )
f(0)=0, f’(.)>0, f”(.)<0, 0<α<1 and β>1

V N t  K it  e θ(τ )τ Pt dτ
t
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 9 of 15
Scientific (R)evolution
Crisis Scientific Activity
K t  0
A t  (Kt - K I 0 )β f (St )
Pr(P At )  φ( At )
Alternative Paradigms
K
A
0
≡ ζKt + ξAt
St (1 - ζ )β
ξ 
1  St (1 - ζ )β
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 10 of 15
Scientific (R)evolution
Paradigm Switching
Kt
K A0
>
Kt + At
Kt + At
θ(t)=ψ(At/Kt)*φ(At)*Pr(KA0>Kt)
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 11 of 15
Scientific (R)evolution
Problems
I
II
III
KIII0
Kt
KII0
At
KI0
Time
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
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Growth Theory as it will be
10
8
6
4
2
0
2002*
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
1954
1950
1946
1942
1938
1934
1930
1926
1922
-2
-4
-6
GDP-growth NL
Poly. (GDP-growth NL)
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 13 of 15
Growth Theory as it will be
0,03
average GDP/CAP growthrate 1960-2000
0,03
0,02
0,02
0,01
0,01
0,00
0,00
-0,01
2000,00
4000,00
6000,00
8000,00 10000,00 12000,00 14000,00 16000,00
-0,01
-0,02
-0,02
1960 GDP/CAP
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 14 of 15
Growth Theory as it will be
Ties institutions to Endogenous Growth
Explains long cycles (Kondratieff)
Clearly identifies role
of Entrepreneurs
In Short:
Explains why Europe and why in 18th Century
Steadyfrom
State
Sucks,
ExplainsAtransition
stagnation
to growth
Explains
cyclical
skill-biases
Cyclical
Growth
Theory Rocks!!
Explains cyclical productivity slowdowns
Suggests very different policies
Mark Sanders, Max Planck Institute for Research on Economic Systems
Seminar at Max Planck Institute Tuesday, March 21st , 2005
slide 15 of 15