The Economic Determinants of Innovation

Productivity in Canada Andrew Sharpe & Someshwar Rao, eds. University of Calgary Press, 2001

University of Alberta School of Business Research Paper No. 2013-645

Posted: 11 Jun 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: September 23, 2000

Abstract

This paper describes what economists know, suspect, and guess about the underlying determinants of innovation. It evaluates the evidence and points out areas where further work is urgently needed. In many cases, no solid conclusions can be drawn. Though the reader may find this frustrating, knowing “what we don’t know” is the beginning of wisdom, and also a guide to avoiding public policy gaffes. A few general facts about innovation are relatively clear. Countries that show more evidence of innovation are richer and grow faster. Companies that show more evidence of innovation post better financial performance and have higher share prices. These broad findings seem quite robust, and justify the current focus of both public policy makers and corporate decision-makers on fostering innovation. In a knowledge-based economy, the primary competition is competition to innovate first, not competition to cut prices as standard economics posits. Because sole ownership of an innovation bestows monopoly power, the economic laws of perfect competition do not govern innovators. Their monopolies reward their investments in innovation. But unlike monopolies in standard economic theory, innovation-based monopolies are temporary, for they last only until another innovator makes yesterday’s innovation obsolete. Intellectual property rights prolong innovators’ monopolies. Do they encourage more innovation by increasing the economic rewards to successful innovators? Or do they slow innovation by letting yesterday’s winners rest on their laurels? Economic theorists have generally assumed the former view, but recent empirical studies seem more consistent with the latter view. Larger firms clearly have an advantage in some types of innovation where large amounts of equipment are required. In general, such capital-intensive research is found

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin, The Economic Determinants of Innovation (September 23, 2000). Productivity in Canada Andrew Sharpe & Someshwar Rao, eds. University of Calgary Press, 2001; University of Alberta School of Business Research Paper No. 2013-645. Available at SSRN: https://ssrn.com/abstract=2277064

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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Bernard Yin Yeung

National University of Singapore - Business School ( email )

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BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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