The Knowledge Trade-Off: Circulation, Growth and the Role of Knowledge-Intensive Business Services in Urban Innovation Systems

Technological knowledge can be analyzed as a collective good since it is the result of systemic dynamics that make possible the access, accumulation and diffusion of interdependent bits of localized technological knowledge among complementary actors. Interactive behaviors and shared learning are the determinants of such collective character highlighting the need for effective communication opportunities and channels. Technological communication relies upon favorable social and institutional conditions which can find in the regional, and especially urban innovation space the proper environment to take place. In cities the opportunities for and actual implementation of technological communication find in social proximity the suitable factor to take advantage from the existing structural variety. Social proximity can enhance the quality of personal and collective relations, in turn accounting for low free-riding, reciprocity and thus repeated interactions based on trust which underpin effective communication of knowledge. Under these circumstances knowledge circulation emerges as the crucial factor in the generation of new technological knowledge and eventually innovation. Technological knowledge and the eventual introduction of innovation are now understood as the results of a cumulative process of recombination of different, preexisting bits of knowledge embodied in a variety of actors which can be effective only when and if the appropriate circulative conditions have been implemented. Knowledge-intensive-business- services (KIBS) play a major role in fostering the rate of knowledge circulation and therefore the overall rate of knowledge production since they operate as intermediary actors in knowledge exchanges, sustaining the development of (quasi)markets for knowledge and therefore enhancing the tradability of knowledge. KIBS are drivers for the creation and circulation of general purpose knowledge (GPK, drown by analogy with general purpose technology) and allow the transformation of such GPK into both idiosyncratic and generic knowledge, and their accumulation over time, even if under specific conditions concerning the costs of appropriation and diffusion of specific and generic knowledge respectively. Finally and most important, the dynamics of collective technological knowledge cum KIBS clearly show that the traditional Arrovian trade-off between knowledge generation and knowledge circulation is still most relevant to the economics of innovation and yet can help to qualify some of its implications. When technological knowledge can be analyzed as a collective good because it is the result of the cumulative recombination of previously existing and dispersed bits of generic and specific knowledge, and such recombination is constrained because of technical and geographical factors, cities and KIBS provide appropriate conditions to support both individual incentives to innovate brought about by higher factor productivity and the social welfare associated with larger diffusion of knowledge.