Chapter 9: Defining innovation
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Innovation is a term widely used in Economics and in policy discussion to encompass many heterogeneous activities. Innovation widely defined, both in terms of the process of and the output from the activity, involves: (i) invention, which may be defined to be the generation of new ideas; (ii) innovation, narrowly defined, which involves the translation of new ideas into new products and production and business processes; and (iii) diffusion, which is the spread of new products and processes across their potential users. This essay addresses each in turn discussing concepts, processes, incentives and outcomes. Distinctions made include: new to the world, new to the market and new to the economic actor; innovation in firms, households and governments; product, process, managerial, organisational and other innovations; functional vs aesthetic characteristics of innovations; and horizontal vs. vertical innovations.

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