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Endogenous Innovation

The Economics of an Emergent System Property

Cristiano Antonelli

This ground-breaking new book builds upon the Schumpeterian creative response. The author shows that firms, in out-of-equilibrium conditions, try and react by means of introducing innovations. The success of their reaction is contingent upon their access conditions to knowledge, which are shaped by the system in which they operate. The emergence of new innovations can, in turn, knock firms further out-of-equilibrium and cause changes in the system properties that govern their access to external knowledge. This path dependent loop of interactions between the system properties and the individual actions of firms, accounts for endogenous innovation and the dynamics of the system.
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Chapter 7: The knowledge appropriability trade-off

The Economics of an Emergent System Property

Cristiano Antonelli

Extract

This chapter explores the full range of effects of knowledge properties, and explains how properties such as transient appropriability, non-exhaustibility and indivisibility have both negative and positive effects. Knowledge externalities help reduce the cost of knowledge, and imitation externalities reduce revenue from and profitability of innovations. Their effects need to be considered jointly in a single analytical framework. An analysis of their combined effects questions the scope of application of the Arrovian postulate. Policy implications suggest that, along with public interventions designed to support the supply of knowledge and compensate for missing incentives, much attention should be paid to all interventions that favour the dissemination of knowledge, knowledge connectivity of the system and selective support for high-quality research projects.

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