Technological knowledge and the theory of the firm: The role of idiosyncratic factors in the quest for the economics of distinctive competences

This paper elaborates a theory of the firm that combines the intuitions of Edith Penrose with the analysis of localized technological knowledge. The analysis of the characteristics of knowledge indivisibility and of idiosyncratic factors pIay a key role in shaping the intentionai strategy of firms about the direction of technology strategies. The firm is viewed as a Iearning agent that, induced by market forces and buiIding upon Iearning processes, elaborates and impiements intentionally strategies of knowledge generation. These strategies include the necessary identification of the externai sources of compiementary technoiogicai knowledge and of the idiosyncratic production factors that is convenient to lise intensiveIy. Learning, in fact is a necessary, but not sufficient condition for the generation of new knowledge. The anaIysis of the conditions for the intentional generation of technoiogicai and organizationai knowledge becomes crociato The analysis of the combined effects of internai Iearning, externai knowledge and intensive lise of idiosyncratic factors by means of the introduction of biased technological change CUlli intentional decision­making provides key inputs to understanding the path dependent and idiosyncratic features of the knowledge generated by the firm as the basis for its distinctive competences.

The Foundations of the Economics of Innovation

During the last forty years, economics of innovation has emerged as a distinct area of enquiry at the crossing of the economics of growth, industrial organization, regional economics and the theory of the firm, becoming a well identified area of competence in economics specializing not only in the analysis of the effects of the introduction of new technologies, but also and mainly in understanding technological change as an endogenous process. As the result of the interpretation, elaboration and evolution of different fields of analysis in economie theory, innovation is viewed as a complex, path dependent process characterized by the interdependence and interaction of a variety of heterogeneous agents, able to learn and react creatively with subjective and procedural rationality.

Venture Capitalism, New Markets and Innovation-led Economic Growth

This paper explores the new market-mediating mechanisms linking SU invention on the one hand and economic growth on the other. Two such mechanisms come to our mind under venture capitalism (of which venture capitalism is directly involved only in the first): 1) a systemic rather than haphazard link between radical inventions and the emergence of new product markets; and 2) a link between new product markets) on the one hand and invention & unbundled technology markets on the other. The first highlights not only the volatility and precariousness of the R&D companies which operated prior to venture capitalism, but also, and related to this, the weak links that existed then between radical invention and the emergence of new markets. There are two aspects of 2) above: 2a) derived demand for improvements in the product and process technology underlying a market (and industry); and 2b) a demand for a substitute, disruptive technology which could replace the existing one. In both cases market size signals the ‘benefits’ to be derived from improving or substituting the underlying technology.

Innovation as an Emerging System Property: An Agent Based Simulation Model

The paper elaborates the notion of innovation as an emerging property of complex system dynamics and 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 organization of the system plays a crucial role in assessing the chances of individual firms to actually introduce innovations because it qualifies the access to external knowledge, an indispensable input, together with internal learning and research activities, into the recombinant generation of new knowledge. The introduction of innovations is analyzed as the result of systemic knowledge interactions among myopic agents that are credited with an extended procedural rationality that includes forms of creative reaction. The creative reaction of agents 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 into which they are embedded to generate new technological knowledge. The ABM enables one to explore effects of alternative organizational features of the systems, namely different configurations of the intellectual property right regimes and different architectural configurations of the regional structure into which knowledge interactions take place, on the rates of introduction of technological innovations. The results of the ABM suggest that the dissemination of knowledge favors the emergence of creative reactions and hence faster rates of introduction of technological innovations.Complex System Dynamics, Innovation, Emergent Property, Technological Knowledge, Intellectual Property Rights, Knowledge Dissemination

Venture Capitalism as a Mechanism for Knowledge Governance: the Emergence of the Markets for Knowledge Intensive Property Rights

Venture capitalism is an outcome of the ICT Revolution, which made its appearance first in the US during the late 1970s and early 1980s and then in other countries including Israel during the 1990s. It explains the new pervasive role of small firms in the introduction of technological innovations and the rise of research and development expenditures in the US in the last decade of the XX century. Venture capitalism is a major institutional innovation based upon the identification of economies of scope in the transactions of technological knowledge bundled with managerial competence, reputation, screening procedures and equity. It has paved the way to the emergence of new surrogate markets for knowledge, i.e. financial markets specialized in the trade of knowledge intensive property rights with important benefits in terms of economic of size in portfolio management and hence profitability of investments in high-tech start- ups. The emergence of venture capitalism has important effects in national system of innovation of advanced countries, and it is a powerful mechanism for the production, dissemination and integration of knowledge in advanced capitalistic economies, and thereby a main driver of a ‘knowledge-based’ growth.Venture capitalism, Start-up companies, Nested transactions, Knowledge bundling, Knowledge intensive property rights, Market creation, Surrogate markets for knowledge, Knowledge governance mechanisms.

Matthew effects and R&D subsidies: knowledge cumulability in high-tech and low-tech industries

The paper explores the causes and effects of persistence in the discretionary allocation of public subsidies to R&D activities performed by private firms in high-tech and low-tech industries. It applies the distinction between virtuous Matthew-effects and vicious Matthew-effects. The former qualifies the persistence in the discretionary allocation of public subsidies in terms of sheer reputation based upon previous awards. The latter is identified by the role of the accumulation of competence stemming from past grants in current R&D activities. Virtuous Matthew effects are found in high-tech industries where knowledge cumulability is higher. In traditional industries, vicious Matthew effects prevail for the lower levels of knowledge cumulability. Here reputation-Matthew-effects can lead to substitution of private funds with public ones. The empirical analysis is based on Transition Probability Matrices, probit regressions and Propensity Score Matching on around 700 Italian firms in the years 1998-2003.Innovation; R&D subsidies; Matthew effects; past dependence; path dependence

Localized appropriability: Percuniary externalities in knowledge exploitation

Pecuniary externalities are crucial in shaping the strategies to value the distinctive competences and the economic success of innovative firms. The analysis of conditions for localized knowledge appropriation and exploitation makes it possible to identify idiosyncratic production factors. The introduction of directed technological change biased towards intensive usage provides the opportunity for the exploitation of technological knowledge