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Cristiano Antonelli and Gianluigi Ferraris

This chapter elaborates the notion of innovation as the outcome of creative responses made possible by the quality of knowledge externalities available in the system. As such the introduction of innovations can be analysed as an emerging property of complex system dynamics. The chapter presents an agent-based simulation model (ABM) of an economy where systemic knowledge interactions among heterogeneous agents are crucial for the recombinant generation of new technological knowledge and the introduction of innovations. In this approach the system’s organization plays a crucial role in assessing the chances of individual firms actually introducing innovations because it qualifies access to external knowledge, an indispensable input, together with internal learning and research, in the generation of new knowledge. The introduction of innovations is analysed as the result of systemic knowledge interactions among myopic agents credited with an extended procedural rationality that includes forms of creative reaction. The agents’ creative reaction may lead to the introduction of productivity enhancing innovations. This takes place only when the structural, organizational and institutional characteristics of the system are such that agents, reacting to out-of-equilibrium conditions, can actually take advantage of external knowledge available within the innovation system in which they are embedded to generate new technological knowledge. The ABM enables us to explore the effects of alternative organizational features, namely different configurations of intellectual property rights regimes and architectural configurations of regional structures in which knowledge interactions take place, on rates of technological innovation. The results suggest that the dissemination of knowledge favours the emergence of creative reactions, and hence faster introduction of technological innovations.

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Cristiano Antonelli and Gianluigi Ferraris

Analysis of the Marshallian and Schumpeterian microfoundations of endogenous innovation enables us to draw a line between the new emerging evolutionary complexity from biological evolutionary analysis and to overcome its limits. This chapter integrates the Marshallian process of imitation and selection with the Schumpeterian creative response. In Marshall initial variety is given and exogenous, the dynamics of the process is driven by the selective diffusion of best practice and long-term equilibrium stops the generation of externalities; firms are not expected to try to react to unexpected mismatches between planned and actual product and factor market conditions. In Schumpeter firms are allowed to try to react, and the quality of knowledge externalities supports their creative response and may keep the system in a self-sustained process of growth. The Schumpeterian creative response can be regarded as a special case of the Marshallian dynamics that takes place when externalities – available to all firms, including best-performing ones – enable the introduction of innovations that account for the reproduction of superior performance and variety. The levels of reactivity of agents and of quality of knowledge externalities, provided by the system, account for output and productivity growth. This hypothesis is tested by means of an agent-based simulation model that shows how these microfoundations of endogenous innovation are able to generate aggregate dynamics based upon the interaction between individual decision-making and system properties.

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Cristiano Antonelli and Gianluigi Ferraris

This chapter elaborates an agent-based simulation model (ABM) to explore the endogenous long-term dynamics of knowledge externalities. ABMs, as a form of artificial cliometrics, allow analysis of the effects of the reactivity of firms caught in out-of-equilibrium conditions, combined with endogenous knowledge externalities stemming from the levels of knowledge connectivity of the system. The simulation results show the working of endogenous knowledge externalities as well as their powerful effects. At the micro-level, the reactions of firms caught in out-of-equilibrium conditions yield successful effects in the form of productivity-enhancing innovations only in the presence of high levels of knowledge connectivity and strong pecuniary knowledge externalities. At the meso-level, the introduction of innovations changes the structural characteristics of the system in terms of knowledge connectivity that affect the availability of knowledge externalities. Endogenous centrifugal and centripetal forces continually reshape the structure of the system and its knowledge connectivity. At the macro-system level, an out-of-equilibrium process leads to a step-wise increase in productivity combined with non-linear patterns of output growth characterized by significant oscillations typical of the long waves in Schumpeterian business cycles.