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Spillover Asymmetry and Why It Matters

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  • Anne Marie Knott

    ()
    (Olin Business School, Washington University, St. Louis, Missouri 63130)

  • Hart E. Posen

    ()
    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Brian Wu

    ()
    (Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

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    Abstract

    Although spillovers are a crucial factor in determining the optimal environment for innovation, there is no consensus regarding their impact on firm behavior. One reason for this may be that models differ in their assumptions for the functional form of the spillover pool. In industrial organization and economic geography, for example, the predominant convention is that all innovation within an industry/region contributes to a spillover pool that has a common value for all firms. An alternative convention prevalent in endogenous growth and evolutionary economics is that spillovers have directionality--the size of the relevant pool differs across firms. Knowing the correct functional form may facilitate theoretical consensus, either analytically (by modifying models' assumptions) or empirically (by supporting a critical test of competing theories). We characterize and test the functional form of spillover pools for efficiency-enhancing innovation across 50 markets in the banking industry. Our results in that setting are consistent with expectations for asymmetric spillovers but inconsistent with expectations for pooled spillovers.

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    File URL: http://dx.doi.org/10.1287/mnsc.1080.0950
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 55 (2009)
    Issue (Month): 3 (March)
    Pages: 373-388

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    Handle: RePEc:inm:ormnsc:v:55:y:2009:i:3:p:373-388

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    Keywords: spillovers; innovation; banking;

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    Cited by:
    1. Fu, Xiaolan & Helmers, Christian & Zhang, Jing, 2012. "The two faces of foreign management capabilities: FDI and productive efficiency in the UK retail sector," International Business Review, Elsevier, vol. 21(1), pages 71-88.
    2. Martzoukos, Spiros H. & Zacharias, Eleftherios, 2013. "Real option games with R&D and learning spillovers," Omega, Elsevier, vol. 41(2), pages 236-249.
    3. Kafouros, Mario I. & Forsans, Nicolas, 2012. "The role of open innovation in emerging economies: Do companies profit from the scientific knowledge of others?," Journal of World Business, Elsevier, vol. 47(3), pages 362-370.
    4. Elias Carayannis & Stephen Clark, 2011. "Do Smartphones Make for Smarter Business? The Smartphone CEO Study," Journal of the Knowledge Economy, Springer, vol. 2(2), pages 201-233, June.
    5. Elias Carayannis & Stephen Clark & Dora Valvi, 2013. "Smartphone Affordance: Achieving Better Business Through Innovation," Journal of the Knowledge Economy, Springer, vol. 4(4), pages 444-472, December.

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