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The direction of innovation

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  • Bryan, Kevin A.
  • Lemus, Jorge

Abstract

How do innovation policies affect the direction of research? Is market-based innovation too radical or too incremental? We construct a novel and tractable model of the direction of innovation. Firms pursue inefficient research directions because they race to discover easy yet less valuable projects and because they work on difficult inventions where they can appropriate a larger portion of the social value. Fixing these inefficiencies requires policy to condition on properties of inventions that could have been discovered but were not. Policies which do not do so, like patents and prizes, may fail to encourage firms to research in the efficient direction, even if they obtain the optimal quantity of R&D.

Suggested Citation

  • Bryan, Kevin A. & Lemus, Jorge, 2017. "The direction of innovation," Journal of Economic Theory, Elsevier, vol. 172(C), pages 247-272.
  • Handle: RePEc:eee:jetheo:v:172:y:2017:i:c:p:247-272
    DOI: 10.1016/j.jet.2017.09.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Chen, Yongmin, 2020. "Improving market performance in the digital economy," China Economic Review, Elsevier, vol. 62(C).
    2. Moraga-González, José-Luis & Motchenkova, Evgenia & Nevrekar, Saish, 2019. "Mergers and Innovation Portfolios," CEPR Discussion Papers 14188, C.E.P.R. Discussion Papers.
    3. Gilad Bavly & Yuval Heller & Amnon Schreiber, 2020. "Social Welfare in Search Games with Asymmetric Information," Papers 2006.14860, arXiv.org.
    4. Stefano Comino & Fabio M. Manenti, 2020. "Patent Portfolios and Firms Technological Choices," "Marco Fanno" Working Papers 0254, Dipartimento di Scienze Economiche "Marco Fanno".
    5. Choi, Jay Pil & Jeon, Doh-Shin, 2020. "Two-Sided Platforms and Biases in Technology Adoption," TSE Working Papers 20-1143, Toulouse School of Economics (TSE).
    6. Kangoh Lee, 2020. "The value and direction of innovation," Journal of Economics, Springer, vol. 130(2), pages 133-156, July.
    7. Haiwei Jiang & Shiyuan Pan & Xiaomeng Ren, 2020. "Does Administrative Approval Impede Low-Quality Innovation? Evidence from Chinese Manufacturing Firms," Sustainability, MDPI, Open Access Journal, vol. 12(5), pages 1-1, March.
    8. Jay Pil Choi & Doh-Shin Jeon, 2020. "Two-Sided Platforms and Biases in Technology Adoption," CESifo Working Paper Series 8559, CESifo.
    9. Letina, Igor & Schmutzler, Armin & Seibel, Regina, 2020. "Killer Acquisitions and Beyond: Policy Effects on Innovation Strategies," CEPR Discussion Papers 15167, C.E.P.R. Discussion Papers.
    10. S. V. Pronichkin & I. B. Mamay & R. N. Bafoev, 2019. "Problems and prospects for evaluating the effectiveness of scientific activity in the chemical-technological field," Russian Journal of Industrial Economics, MISiS.
    11. Jeffrey L. Furman & Florenta Teodoridis, 2020. "Automation, Research Technology, and Researchers’ Trajectories: Evidence from Computer Science and Electrical Engineering," Organization Science, INFORMS, vol. 31(2), pages 330-354, March.

    More about this item

    Keywords

    R&D incentives; Externalities; Innovation; Innovation policy;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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