Search Speed and Theory Discovery: A Model for Innovation

We develop a model for analyzing firm innovation strategies, distinguishing between the exploitation of established firm-level paradigms (which we call †theories†) and the exploration of new paradigms. Central to the model is the role of speed. The empirical analysis of a sample of all US public firms with at least one patent between 1980 and 2021, reveals that the speed at which firms exploit innovations within their existing paradigms is positively correlated with their exploration of new technological areas, an increase in patent output relative to R&D, and an increase in firm size over time. The model identifies three drivers of innovation success: search speed within existing theories, the probability of discovering new theories, and the scale of firm resources. High search speed increases early-stage productivity and resource accumulation, increasing the likelihood of discovering new theories and sustaining growth. Among other things, our model provides an explanation for the hyper-growth of many high-tech companies today. Policymakers should consider interventions that accelerate search-enhancing technologies and foster theory generation across industries, promoting equitable growth and reducing disparities in innovation capacity.