The Welfare Analysis of Product Innovations with an Application to Ct Scanners

104 Pages Posted: 17 Aug 2004 Last revised: 20 Mar 2022

See all articles by Manuel Trajtenberg

Manuel Trajtenberg

Tel Aviv University - Eitan Berglas School of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: October 1985

Abstract

The main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric, i.e., equating the "magnitude" of innovations with the welfare gains that they generate. This research design is applied to the case of Computed Tomography (CT) Scanners, a revolutionary innovation in medical technology. The econometric procedure centers on the estimation of a discrete choice model (the nested multinominal logit), that yeilds the parameters of a utility function defined over the-changing-quality dimensions of the innovative product. The estimated flow of social gains from innovation is used primarily to compute a social rate of return to R&D, to explore the interrelation between innovation and diffusion, and to trace the time profile of benefits and costs, the latter suggesting the possible occurance of "technological cycles".

Suggested Citation

Trajtenberg, Manuel, The Welfare Analysis of Product Innovations with an Application to Ct Scanners (October 1985). NBER Working Paper No. w1724, Available at SSRN: https://ssrn.com/abstract=338793

Manuel Trajtenberg (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

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