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Uncertainty and the size distribution of rewards from innovation

Author

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  • F. M. Scherer
  • Dietmar Harhoff
  • J, rg Kukies

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.

Suggested Citation

  • F. M. Scherer & Dietmar Harhoff & J, rg Kukies, 2000. "Uncertainty and the size distribution of rewards from innovation," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 175-200.
    • Handle: RePEc:spr:joevec:v:10:y:2000:i:1:p:175-200
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    More about this item

    Keywords

    Innovation - Risk - Uncertainty - Skew distributions - Gibrat's Law;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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