Social Push and the Direction of Innovation

Abstract

Ideas are a key input into innovative activity. As a result, ideas accumulated through an innovators' personal and social experience may affect the direction of their innovative activity. Consistent with this “social push” channel, we document that innovators create products that are more likely to be purchased by customers similar to them along observable dimensions including gender, age, and socioeconomic status, both across and within detailed industries. Next, we provide causal evidence that social experience affects the direction of a person's innovative activity. Specifically, being exposed to peers from a lower-income group increases an entrepreneur's propensity to create necessity products, without affecting her rates of entrepreneurship and entrepreneurial income. We incorporate this channel into a general equilibrium model to assess its implications for inequality and long-run growth when there is unequal access to the innovation system.

Keywords: Entrepreneurship, Innovation, New Goods, Product Variety, Economics of Ideas

JEL Classification: O30, L26, J16