New Horizons in Intellectual Property series
Edited by Derek Bosworth and Elizabeth Webster
Paul H. Jensen and Alfons Palangkaraya 1 INTRODUCTION Innovation is generally recognized by economists as the ultimate engine of growth and prosperity. As Gans and Stern (2003, p. 7) state: ‘World class competitiveness and prosperity depends on … the ability to develop and commercialise “new-to-the-world” technologies, products and business organizations.’ This insight has spawned burgeoning interest in the analysis of innovation and its determinants at both the national level and the company level. While governments are typically interested in aggregate measures of innovation so that a nation’s performance can be benchmarked against others, it is at the ﬁrm level where most of the innovative activity actually occurs: ﬁrms take the risks involved in commercializing the inventions which ultimately drive the growth of the domestic economy. As a consequence, measurement of companies’ innovative performance has also received a lot of attention from academics, policy-makers and business analysts. However, measurement of innovation at either the national or company level is difﬁcult for a number of reasons. First, an innovation (by its very deﬁnition) is something that is ‘new’, which makes it difﬁcult to construct a measure of innovation which is general enough to be used to compare to other innovative outputs. Second, the innovation process typically takes many years and involves managing numerous risks. As a result, the relationship between inputs (such as R&D expenditure) and outputs (such as patents) is potentially non-linear and it is unclear how these factors can be accounted for in a single measure of...