New Frontiers in the Economics of Innovation and New Technology: Essays in Honour of Paul A. David

Published by EH.NET (February 2007)

Cristiano Antonelli, Dominique Foray, Bronwyn H. Hall and W. Edward Steinmueller, editors, New Frontiers in the Economics of Innovation and New Technology: Essays in Honour of Paul A. David. Cheltenham, UK: Edward Elgar, 2006. vii + 485 pp. $160 (cloth), ISBN: 1-84376-631-0.

Reviewed for EH.NET by James Bessen, Boston University School of Law.

This festschrift of fifteen papers (plus an introduction and a postscript) reflects the breadth of Paul David’s work, both in the range of subjects and in the methods used. The postscript, written by Dominique Foray, compares David’s work to a theatrical performance that includes roles for Galileo and Edison, as well as Pomo Indians and !Kung bushmen, nymphs, reapers and robots, sex, blood and more. The collection in the book, no less broad (although probably less theatrical), has something for everyone.

The papers are grouped into three sections, reflecting important themes in David’s work: path dependence, the economics of knowledge and the diffusion of innovation. The significance of David’s contributions in each of these areas is developed in the introductory essay by the editors and this provides a general, but brief, introduction to his large body of work.

The first chapter, by Andrea P. Bassanini and Giovanni Dosi explores why technology markets tend to be monopolies. This paper presents a theoretical model to challenge Brian Arthur’s (1989) widely-cited model of competing technologies. Arthur’s model has been used to argue that technological monopolies result from unbounded increasing returns. The paper shows that Arthur’s result is not general, but follows instead from specific assumptions of linearity and limited heterogeneity among agents. The authors do find, however, that increasing returns combined with a high rate of technological change frequently generate stable near-monopolies in a more general model.

Cristiano Antonelli, in the second chapter, develops a high level overview of different kinds of technological path dependence and relates this to issues of dynamic economic efficiency.

Franco Malerba and Luigi Orsenigo study the evolution of the pharmaceutical industry, looking at the interrelations between technology, regulation and market structure. They begin with a very nice summary of the development of pharmaceutical search technology over the past fifty years, noting cross-country differences in regulation and differences in the roles of imitative firms and market leaders. They follow this with a simulation model for the “random screening” era that reproduces some of these relationships.

John Cantwell uses patent data in an innovative way to explore path dependency of large firms regarding their choices of technological specialization. These firms maintained patterns of specialization — that is, high levels of patenting relative to their industry peers in certain specialties — for periods of sixty years or longer. Interestingly, Cantwell also finds some general trends in technological diversification: the large firms in chemical and electrical industries initially increased their diversification, followed, over the last several decades, by a trend toward greater technological concentration.

Two papers, one by G. M. Peter Swann and one by Robin Cowan, look at issues of path dependency in tastes for art. Swann uses correlations in auction prices for the paintings of different artists to map these relationships. Cowan models the cyclical nature of changes in these relationships.

Beginning the section on the economics of knowledge, W. Edward Steinmueller picks up on Paul David’s theme of organization and learning. He looks at historical examples, including the transitions from craft organization to the American system of manufactures to Fordism to GM’s “flexible mass production” to inform a discussion of current-day issues of learning and organization in the use of information technology to enhance product variety.

Dominique Foray and Lilian Hilaire Perez cover some less familiar history, comparing Paul David’s “open science” with the “open technology” of the Lyon silk industry, which bore some similarities to examples of shared innovation discussed by Allen, von Hippel and others. Lyon established a sophisticated system of rewards for inventors with incentives to share their knowledge. This led to an extended period inventiveness. In contrast, the British silk industry, where a larger share of inventions was patented, was relatively backward. Foray and Hilaire Perez make a very useful comparison between the features of the Lyon system and those of open science.

Jacques Mairesse and Laure Turner directly explore the nature of scientific collaboration by using data on co-publication to measure the intensity of collaboration. Using this measure, they investigate how the intensity of collaboration varies with geographical location and technological specialization.

Patrick Cohendet and Ash Amin look at knowledge and the nature of the firm, stressing interactions between “epistemic communities” and “communities of practice” within the firm.

Ashish Arora, Andrea Fosfuri and Alfonso Gambardella ask how institutions affect the creation and development of markets for technology. In numerous papers and a book (2001), these authors have explored aspects of technology markets. Here, with an eye toward policy, they look specifically at the roles of standards, well-defined property rights and institutions that encourage risk-taking. The article provides a nice overview of a large range of policy-related issues from an institutional perspective. At times the authors seem a bit too enthusiastic. For example: “It is difficult to think that a market … could ever function properly without property rights …” I suspect that economic historians might think of examples of trade pre-dating property rights or examples of illicit trade outside the realm of property rights. Nevertheless, the article provides a useful overview.

Arora, Fosfuri and Gambardella argue that global technology markets allow small countries to specialize in technology fields in an international division of innovative labor. Stefano Brusoni and Aldo Geuna explore patterns of national specialization and also the integration of different types of technical knowledge. They develop indices of specialization similar to those used by Cantwell in the paper discussed above, but based on data of peer-reviewed papers in chemistry and pharmacology instead of patent data. They also measure the integration of knowledge across areas of basic research, applied research and applied technology and engineering. They find that large European nations do not integrate basic research into pharmaceutical technology as well as the U.S. does; they propose that this explains why EU R&D managers in pharmaceuticals rely on U.S. research. They also claim, perhaps controversially, that their measures might serve as a policy guides — governments might facilitate national specialization by supporting integrated knowledge development.

The book’s section on the diffusion of innovation begins with a chapter by Bronwyn Hall and Manuel Trajtenberg that reports on attempts to identify General Purpose Technologies using patent statistics. Paul David (1990) persuasively argues that the diffusion of electric motors one hundred years ago bears important similarities to the diffusion of computer technology today. Both have been called General Purpose Technologies (GPT), but some researchers have felt that too many technologies can be called GPTs for the term to be a useful analytical tool. The authors of this paper explore the use of a variety of statistics based on patent citations to see if they can derive a measure of “generality” and identify GPTs. Their results are mixed. Using a combination of statistics, they identify twenty highly ranked patents; most are related to using computers, especially for interacting and working at a distance. These technologies seem to fit the intuitive description of GPTs. On the other hand, the authors note several possible biases that may have influenced this result.

The next chapter, by Luis M. B. Cabral presents a theoretical model of technology diffusion that includes adopter heterogeneity (like David’s 1969 model) and also network effects.

In the final chapter, Paul Stoneman and Otto Toivanen also build a model of technology diffusion, this one based on a real options approach. They then apply this model to data on international diffusion of robot technology, using a sophisticated econometric model. They use the estimated model to conduct policy thought-experiments, for example, testing the effects of macro-economic stability on a nation’s diffusion rate for robot technology.

The research in this book exhibits a wide variety of methods, topics and styles. Few readers will find all of the contributions worthwhile or interesting. But few who have an interest in technological innovation will fail to find something of value.

References:

Arora, Ashish, Andrea Fosfuri and Alfonso Gambardella (2001), Markets for Technology: The Economics of Innovation and Corporate Strategy, Cambridge, MA: MIT Press.

Arthur, W. Brian (1989), “Competing Technologies, Increasing Returns, and Lock-in by Historical Events,” Economics Journal 99: 116-31.

David, Paul A. (1969), “A Contribution to the Theory of Diffusion,” Research Center in Economic Growth, Memorandum No. 71, Stanford University.

David, Paul A. (1990), “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox,” American Economic Review 80: 355-61.

James Bessen, Lecturer in Law, Boston University School of Law and Director, Research on Innovation has, following Paul David, written about learning-by-doing in “Technology and Learning by Factory Workers: The Stretch-Out at Lowell, 1842,” Journal of Economic History (2003). He is a former innovator and entrepreneur who wrote one of the first desktop publishing programs. Now he writes about technological innovation and patents. Current works include (with Eric Maskin) “Sequential Innovation, Patents, and Imitation,” RAND (2007); (with Robert M. Hunt) “An Empirical Look at Software Patents,” Journal of Economics and Management Strategy (2007) and a book (with Michael J. Meurer), Do Patents Work? The Empirical Evidence That Today’s Patents Fail as Property and Discourage Innovation, and How They Might Be Fixed (forthcoming 2008).