From Knowledge to Ideas: The Two Faces of Innovation
James E. Bessen
Boston University - School of Law; Research on Innovation
March 1, 2011
Boston Univ. School of Law Working Paper No. 10-35
Innovative ideas have unique properties arising from low communication costs. But ideas come from knowledge that is costly to communicate. “Formalizing” knowledge — codifying, developing standards, etc. — reduces these costs. In a simple model, formalization is associated with changes in the nature of competition between two equilibrium regimes. In one, knowledge is formalized, new technology replaces old and patents increase innovation incentives. In the other, knowledge is not formalized, old technology coexists with new, patents decrease innovation incentives and firms sometimes freely exchange knowledge. The equilibrium changes as technology improves over a life-cycle, affecting firm strategy, innovation policy, geographic localization and more.
Number of Pages in PDF File: 44
Keywords: technology, knowledge, diffusion, spillovers, human capital, information good
JEL Classification: O3, D83, L1
Date posted: October 28, 2010 ; Last revised: August 31, 2012
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