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

  • Roberto Fontana


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

  • Marco Guerzoni


    (Schiller Universität)

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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Paper provided by SPRU - Science and Technology Policy Research, University of Sussex in its series SPRU Working Paper Series with number 163.

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Length: 35 pages
Date of creation: 01 Nov 2007
Date of revision:
Handle: RePEc:sru:ssewps:163
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  3. Kraft, Kornelius & Czarnitzki, Dirk, 2001. "Firm leadership and innovative performance: evidence from seven EU Countries," ZEW Discussion Papers 01-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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