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Incentives and uncertainty: an empirical analysis of the impact of demand on innovation

Author

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  • Roberto Fontana

    (University of Pavia & CESPRI, Bocconi University, Italy)

  • Marco Guerzoni

    (Schiller Universität)

Abstract

We study the impact of demand on innovation. By focusing on a sample of small- and medium-sized enterprises in several industries and European countries, we analyse how demand stimulates innovation by providing economic incentives and reducing uncertainty. Considering the size of the market as a proxy for the presence of demand, we find support for the idea that the presence of incentives stimulates innovation. This is particularly true for process innovation. In considering interaction with customers as a way to reduce uncertainty, we find that firms that see customers as the most important sources of information for both innovation ideas and completion, tend to introduce product innovations. Firm size, R&D expenditure and sectoral effects also matter. Copyright The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
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Suggested Citation

  • Roberto Fontana & Marco Guerzoni, 2007. "Incentives and uncertainty: an empirical analysis of the impact of demand on innovation," SPRU Working Paper Series 163, SPRU - Science Policy Research Unit, University of Sussex Business School.
    • Handle: RePEc:sru:ssewps:163
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    References listed on IDEAS

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    Keywords

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    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
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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