Social Push and the Direction of Innovation

Abstract

Most innovators are men from privileged backgrounds; what are the implications for the direction of innovation and inequality? Leveraging novel linked datasets in the United States and Finland, we document that innovators create products more likely to be purchased by consumers similar to them in terms of gender, socioeconomic status, and age. Innovator-consumer homophily holds both across and within detailed industries. We find that a key explanatory channel is that social exposure causes a shift in the direction of innovation, independent of financial incentives. For example, being exposed to lower-income peers during higher education increases an entrepreneur’s propensity to create necessity products without affecting entrepreneurial income, consistent with intrinsic motivations for social impact. Incorporating this “social push” channel and innovator-consumer homophily into a general equilibrium growth model, we estimate that unequal access to innovation careers has a large effect on both cost-of-living inequality in consumer welfare and long-run growth. In particular, the under-representation of women among innovators leads to missing product variety for women, inducing a gender cost-of-living gap almost as large as the gender pay gap.

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

JEL Classification: O30, L26, J16