Institutions and Innovation Diffusion

Starting from De Canio and Watkins (1996) model of the firm, we study the diffusion of an industry-specific innovation in a digraph where each node "decides" whether or not to accept the innovation. We consider two scenarios. In the first one, the innovation is generated inside some firm and diffuses from there. In the second case, the innovation is introduced and "pushed" by some external institution (universities or public research institutions) connected to the industry network. The analysis focuses on the relation among the source of innovations, the firms' organization and the agents' learning ability. The results of the simulations clearly point to a speedier diffusion process whenever the institution is present. Furthermore, we give evidence of a certain level of substitutability between the institution pervasiveness in the firm and the agents' learning ability. We suggest that industrial districts foster the emergence of informal networks of relations; we stress the importance of these networks--which we interpret as endogenous institutions--in the absence of more formal institutional structures as in the case of the Italian North-East.