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Uncertainty and the size distribution of rewards from innovation

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Author Info
F. M. Scherer
Dietmar Harhoff
J, rg Kukies

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Abstract

Previous research has shown that the distribution of profit outcomes from technological innovations is highly skew. This paper builds upon those detailed findings to ask: what stochastic processes can plausibly be inferred to have generated the observed distributions? After reviewing the evidence, this paper reports on several stochastic model simulations, including a pure Gibrat random walk with monthly changes approximating those observed for high-technology startup company stocks and a more richly specified model blending internal and external market uncertainties. The most highly specified simulations suggest that the set of profit potentials tapped by innovators is itself skew-distributed and that the number of entrants into innovation races is more likely to be independent of market size than stochastically dependent upon it.

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Publisher Info
Article provided by Springer in its journal Journal of Evolutionary Economics.

Volume (Year): 10 (2000)
Issue (Month): 1 ()
Pages: 175-200
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Handle: RePEc:spr:joevec:v:10:y:2000:i:1:p:175-200

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Related research
Keywords: Innovation - Risk - Uncertainty - Skew distributions - Gibrat's Law;

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Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

Cited by:
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  1. Mahlich, Jörg C. & Roediger-Schluga, Thomas, 2006. "The Determinants of Pharmaceutical R&D Expenditures: Evidence from Japan," UNU-MERIT Working Paper Series 015, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
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  2. Silverberg,Gerald & Verspagen,Bart, 2002. "A Percolation Model of Innovation in Complex Technology," Research Memoranda 032, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  3. Alfred Spielkamp & Christian Rammer, 2006. "R&D - Strategic elements for innovation and market success," Management & Marketing, Economic Publishing House, vol. 1(4), Winter. [Downloadable!]
  4. van Pottelsberghe, Bruno & van Zeebroeck, Nicolas, 2008. "Filing Strategies and Patent Value," CEPR Discussion Papers 6821, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Silverberg, G. & Verspagen, B., 2005. "Self-organization of R&D search in complex technology spaces," ECIS Working Papers 05.07, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
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  6. William Kingston, 2004. "Nelson's Concerns About Intellectual Property," Levine's Working Paper Archive 122247000000000461, David K. Levine. [Downloadable!]
  7. Bronwyn Hall & Adam Jaffee & Manuel Trajtenberg, 2000. "Market Value and Patent Citations: A First Look," Department of Economics, Working Paper Series 1036, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  8. Carolina Castaldi & Bart Los, 2008. "The identification of important innovations using tail estimators," Innovation Studies Utrecht (ISU) working paper series 08-07, Utrecht University, Department of Innovation Studies, revised Feb 2008. [Downloadable!]
  9. Raquel Ortega-Argilés & Marco Vivarelli & Peter Voigt, 2009. "R&D in SMEs: a paradox?," Small Business Economics, Springer, vol. 33(1), pages 3-11, June. [Downloadable!] (restricted)
  10. Orietta Marsili & Ammon Salter, 2005. "'Inequality' of innovation: skewed distributions and the returns to innovation in Dutch manufacturing," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 14(1-2), pages 83-102, January. [Downloadable!] (restricted)
  11. Thomas Astebro, 2003. "The Return to Independent Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving?," Economic Journal, Royal Economic Society, vol. 113(484), pages 226-239, January. [Downloadable!] (restricted)
  12. Silverberg,Gerald, 2003. "Long Waves: Conceptual, Empirical and Modelling Issues," Research Memoranda 015, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  13. Orietta Marsili, 2006. "Stability and Turbulence in the Size Distribution of Firms: Evidence from Dutch Manufacturing," International Review of Applied Economics, Taylor and Francis Journals, vol. 20(2), pages 255-272, April. [Downloadable!] (restricted)
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