Ehud Zuscovitch

Is firm size conducive to R&D choice? A strategic analysis of product and process innovations

Abstract Using a duopoly model of multiproduct firms, we show that different innovation incentives cause the larger firm to invest more in process (cost-reducing) innovations and the small one to allocate more resources to search for new products. Because of this heterogeneity of R&D behavior, the large firm remains dominant for the original product in the post-innovation market, but the small firm is more likely to be a leader in the new product market. These theoretical results are consistent with recent empirical findings.

Networks, Sustainable Differentiation, and Economic Development

An economic network is a constellation of firms linked to each other by partnership arrangements to confer mutual advantages on its participants. It represents an intermediate form of governance between spot transactions on one hand—being the “purest” form of clearing deals in market economies—and full integration within a single firm. In network organizations, firms preserve their identity and are free to operate in the open market, but find it to their advantage to maintain a long-term relationship with their partners, fostering mutual confidence and cooperation. Participants share the risks of specialization, to some extent, while establishing patterns of exchange of information that internalize knowledge and technology transfers within the network. This form of interaction parallels the practice of raising funds through the limited responsibility mechanism, a point to which we shall come back later. In this chapter we aim to understand the fundamental drive behind a network’s formation over the last years, and to explore the rationale and impact of this tendency in the context of managing technical change and sustaining growth.

The Economic Impact of Subsidized Industrial R&D in Israel

Israel offers contingent subsidies to selected industrial RD small firms that received one sixth of the subsidies contributed over a quarter of the gains.

Networks, Specialization and Trust

This paper addresses the issue of economic viability of Information Intensive Production Systems from a long-run perspective. The relationship between capital, division of labor, and economic development is analyzed in the context of new opportunities for product variety which are created by wide dissemination of information technologies on the supply side, and by demand for such variety in countries with high per capita income. It is argued that a new form of industrial organization, network structures, emerges to deal with problems of resource allocation in a “monopolistic-competition” form of economic coordination, just as oligopolistic structures coordinated the capital-intensive industries of the post World War II era. Because of their ability to internalize externalities, networks offer a flexible organizational solution for joint specialization, provide some protection for property rights of intangible assets, and more importantly, alleviate the capital accumulation constraint on the division of labor and growth. As in other types of imperfect competition, the social loss of welfare from coalition behavior may be offset by networks’ increased ability to generate and diffuse innovative activities

Demand Reveling and Knowledge Differentiation Through Network Evolution

Economic development involves increased production efficiency and rising consumption standards. This requires capital accumulation, which allows for a better division of labor; that is, a process of ever deepening differentiation of knowledge and know-how on both the scientific/technological and user levels. Since the industrial revolution, efficiency has entailed standardization and scale economies have only been available for highly standardized goods around the production of which it was possible to conceive and develop efficient apparatus. This meant huge plants to produce physical commodities. However, even then the financial capital that was and still is a precondition for production (the physiocrats called it “advances”) could only be raised through the design of a share-holding mechanism (to assure financial divisibility). The resulting mechanism was limited liability, which is also a risk-sharing device to stimulate entrepreneurship.

Technology and information: chain reactions and sustainable economic growth

Economic growth is sustained by development mechanisms that are somewhat similar to chain reactions. In the standard production paradigm this occurs through successive reorganizations and increasing use of ‘hard’ automation leading to scale economies and thus to greater efficiency. In turn, this leads to lower costs, lower prices and growing demand, which triggers a new reorganization, and so forth. Research and engineering development have been integrated into the same cyclic growth process. The advent of information-intensive ‘flexible’ manufacturing, with increasing emphasis on product variety and customization, raises the question of whether sustainable economic growth will still be possible in the ‘new paradigm’. This is because flexible production is much less standardized. Hence capital-scale economies are more limited. Economies-of-scope through the joint use of production factors in a multi-product setting can only partially offset the loss of scale economies. We argue, however, that informational-scale economies will be achievable if (and only if) the use of information technologies in production per se is truly integrated with their use in other management functions, instead of being introduced ad hoc as is being done in most firms at present.

Learning patterns Within a Technological Network

Modern ‘information intensive’ production is rich in variety and complexity. It relies upon highly specific micro-markets in which producers and users interact.

Network Characteristics Of Technological Learning The Case Of The European Space Program

In complex high-tech programs, a network of sub-contracting relationships is essential to reach the high-level specialization required. In the case of the European space program, we show that technological learning depends on the organizational role played by the program contractors A Markovian framework is used to structure innovation transfers and spillovers both within and among contractor-type aggregates. Subsystem contractors are shown to drain technological knowledge from prime and equipment conlractors alike.

Economic Consequences of Limited Technology Transferability

Because technology is often context-dependent and partly tacit, it is much less transferable than conventional ‘innovation and market structure’ models have long assumed. Technological know-how is represented in this paper as a combination of formal knowledge and informal practice. The balance of these basic components is viewed as an optimisation of R&D investment structure and level within an oligopolistic framework. We analyse the outcomes of this optimisation in terms of R&D production efficiency and social welfare. With regard to R&D investment structure, we find that the equilibrium outcome is neither efficient nor socially optimal, and the stronger competition is, the larger the divergence from efficiency and social optimum. For R&D investment level, the results are less conclusive, but they imply that competition represents the best conditions for stimulating R&D investment

An Introduction to Technological Infrastructure and Technological Infrastructure Policy

Technological infrastructure policy (TIP) is increasingly coming to the forefront of policy discussions, both in the specific context of technological policy, and more generally in regards to growth-promoting policies in advanced and developing economies. This has been accompanied by an expansion of the conventional notion of infrastructure that has occurred since the mid-eighties. In particular, the structuralist perspective on economic growth and development has emphasized the importance of structural change in growth while incorporating a wider notion of infrastructure that includes both universal and structural change-specific components (Justman and Teubal 1990, 1991; Guerrieri 1992; Lipsey and Bekar 1995). In addition to the traditional infrastructure elements of physical capital, human capital, and institutions, this approach also incorporates a separate technological infrastructure (TI) component. This broader view of the nature and enhanced role of infrastructure in economic growth is consistent with the policy and growth experience of the successful newly industrialyzing countries of Asia (Justman, Teubal, Zuscovitch 1993). It is also increasingly being recognized as being of wider relevance by both policy makers and academic economists. However, a complete acknowledgement of the role played by a distinct technological-infrastructure component has not yet taken place within large segments of the macroeconomic and advanced-neoclassical communities of scholars. We trust that this volume will make a contribution to this process.