Networking For Innovation

Olav Sorenson from Yale published a new NBER working paper called “Innovation Policy in a Networked World”. The essay is quite interesting because it reviews insights we got from social network theory (no, not Facebook, although you could analyze Facebook with the same tools) and puts them into context for designing effective policy measures to stimulate innovation.

The key idea is that many valuable resources, such as money, influence or ideas, are not freely available to every individual or organization, but are instead distributed via social networks such as this one:

Sorenson_figure1
Source: Sorenson (2017), NBER Working Paper 23431

In this example, ideas might flow freely and efficiently between Gina, David, Emily, and Fred because they are all well-connected (these connections could be mutual friendships or business relationships). But for Chris it might be very hard to benefit from Emily’s ideas, simply because they are so far apart in the network.

Sorenson makes a good case for the importance of  networks and combining new ideas in science and technology:

“The solving of the structure of DNA contains examples of many of the ways in which social relationships shape the process of innovation. It required the combination of ideas from a range of fields, from biology to mathematics and physics. Watson gained early access to the crystallography, a crucial piece of information, because he had met Wilkens at a conference and remained in contact with him. Crick and Watson, the most central individuals involved, moreover, have received most of the credit for the discovery, despite the near simultaneous determination of the structure of DNA by others and despite the involvement of Franklin and Wilkens. Social relationships played a role in determining both who first arrived at the discovery and who received attention for it.”

You could think of Crick and Watson as being Beth and Chris in the network above. Wilkens might have been the boundary spanner, such as Alex, that connected them—more or less by chance—to a whole set of new ideas (crystallogrpahy) developed in a different scientific community.

Now, as I heard a social network scholar once say, networks and their influence on society are fascinating to study but they can be quite inefficient. In the end we might be better of if key resources were not allocated via them. Sorenson thus proposes two broad approaches for policy to mitigate network effects.

First, policy could try to steer the allocation of resources away from networks by creating more commons and open access. This would essentially reduce the importance of networks. One example from the scientific community is to require open access to research data which reduces entry barriers to certain fields for less connected researchers.

Second, policy could embrace the importance of social networks but try to increase the connectedness of members. This would be an attempt to manipulate individuals’ position within the network. One tool to achieve this goal—which is already used frequently in the EU—is to give out travel grants to researchers such that they can spend some time abroad to enlarge their network.

I enjoyed reading Sorenson’s essay a lot. He provides thought-provoking impulses for designing unconventional innovation policies with high impact. An added advantage is that these policies are often not very expensive to implement once you understand the power of social networks.

Innovation on (government) demand?

Next week we will organize the 7th ZEW/MaCCI Conference on the Economics of Innovation and Patenting in Mannheim and the program will be great. We will have Bronwyn Hall from Berkeley and Pierre Azoulay from MIT as keynote speakers. I’m definitely looking forward to hear them speak.

Myself, I will present a new project on the relationship between public procurement and innovation. In brief the research question is the following. Continue reading Innovation on (government) demand?

Cardwell’s Law

While reading Joel Mokyr’s newest book I came across an older paper of him, which I found very interesting. It is about what Mokyr calls Cardwell’s law*— the empirical regularity that “most societies that have been technologically creative have been so for relatively short periods”. Throughout economic history successful countries in terms of innovation and economic growth have usually lost their competitive edge pretty soon again and were overtaken by others. Continue reading Cardwell’s Law

Do Most Companies Even Try to Innovate Anymore?

This post first appeared on hbr.org (Harvard Business Review, 14 April 2017).

We are living in the age of the superstar firm. Companies like Samsung, Google, or BMW—the top players in their respective industries—are prospering. Yet economic growth remains sluggish in many parts of the world. The reason for that paradox, as the OECD has warned, is that the productivity gap between firms at the global frontier and those lagging behind has widened. Continue reading Do Most Companies Even Try to Innovate Anymore?

How effective are patents really?

Today, an interesting NBER working paper by Deepak Hegde from NYU Stern and coauthors got published:

We provide evidence on the value of patents to startups by leveraging the random assignment of applications to examiners with different propensities to grant patents. Using unique data on all first-time applications filed at the U.S. Patent Office since 2001, we find that startups that win the patent “lottery” by drawing lenient examiners have, on average, 55% higher employment growth and 80% higher sales growth five years later. Patent winners also pursue more, and higher quality, follow-on innovation. Winning a first patent boosts a startup’s subsequent growth and innovation by facilitating access to funding from VCs, banks, and public investors.

Continue reading How effective are patents really?

Innovation activity in Germany is becoming more concentrated

This is an English translation of a column I published together with my colleague Christian Rammer from ZEW on oekonomenstimme.org. A pdf version can be downloaded here.

For years investments in research and development (R&D) have shown a rising trend in Germany. In 2015 they have reached a record high of 157.4 billion euro. At the same time, however, R&D expenditures are becoming concentrated within a smaller number of actors. The share of companies that invest in innovation falls steadily. As a result, innovation activities in the economy are more unevenly distributed. This column discusses possible causes for this development. Continue reading Innovation activity in Germany is becoming more concentrated

How WWII changed family life in Soviet Russia (and probably elsewhere too)

This is an interesting paper (here is an ungated version) by Elizabeth Brainerd in the new issue of the Review of Economics and Statistics. Abstract:

How does a shock to sex ratios affect marriage markets and fertility? I use the drastic change in sex ratios caused by World War II to identify the effects of unbalanced sex ratios on Russian women. Using unique archival data, the results indicate that male scarcity led to lower rates of marriage and fertility, higher nonmarital births, and reduced bargaining power within marriage for women most affected by war deaths. The impact of sex ratio imbalance on marriage and family persisted for years after the war’s end and was likely magnified by policies that promoted nonmarital births and discouraged divorce.

Other countries had similar wartime experiences to those of Russia. But what is unique about the Soviet  context is the scale of casualties during WWII. There was an estimated number of “26 to 27 million, or roughly 13.5% of the prewar population”, victims. “The sex ratio fell dramatically for individuals born in the 1920s and reached a low of 0.60 for women born in 1924″. And this “relative scarcity of men continued to profoundly affect women’s lives: women were less  likely to marry, more likely to give birth out of wedlock, and more likely to be divorced in  the birth cohorts and regions facing the greatest shortages of men” (all quotes from the paper).

As the abstract states, the effect of male shortage was likely enhanced by subsequent Soviet family policies (p. 3):

Alarmed at the devastating population losses suffered by the country and the  declining birth rate, the Soviet government implemented the strongly pronatalist  Family Code in 1944. This legislation imposed a tax on single people and married couples with fewer than three children and expanded the child benefit program to  provide a monthly payment for all children born out of wedlock (Heer, 1977). Far from discouraging nonmarital births, the 1944 law absolved fathers of any financial or legal responsibility for children fathered outside marriage; unmarried mothers were prohibited from naming the father on the birth certificate or claiming financial support for their children. The 1944 Family Code also made the procedure for divorce  so expensive and complicated that it has been described as effectively a ‘‘prohibition on divorce’’ (Avdeev & Monnier, 2000). The high cost of divorce combined with nearly costless nonmarital sexual relations significantly increased the cost of registered  marriage relative to bachelorhood for men.

The author concludes that, although the Soviet experience was certainly unique, the results on the effect of an extremely unbalanced sex ratio on marriage and fertility are informative also for other contexts. Similar things (albeit to a lesser extent) could have been going on in other post-war societies in Europe. And there is some empirical evidence to support this hypothesis (see here and here).