Tom Nicholas

Inducement Prizes and Innovation

We examine the effect of prizes on innovation using data on awards for technological development offered by the Royal Agricultural Society of England at annual competitions between 1839 and 1939. We find large effects of the prizes on competitive entry and we also detect an impact of the prizes on the quality of contemporaneous patents, especially when prize categories were set by a strict rotation scheme, thereby mitigating the potentially confounding effect that they targeted only “hot” technology sectors. Prizes encouraged competition and medals were more important than monetary awards. The boost to innovation we observe cannot be explained by the re-direction of existing inventive activity.

Was Electricity a General Purpose Technology? Evidence from Historical Patent Citations

General purpose technologies (GPTs) are credited with generating the increasing returns that drive endogenous growth. For example, Paul David (1991) explains the surge in U.S. productivity during the 1920’s as a delayed response to the introduction of the electric dynamo in the 1880’s. To the extent that GPTs yield large positive externalities on a wide range of industries some time after they are discovered, individual inventors are likely to underinvest in them, and government intervention may be necessary to reach optimal levels of investment in research and development. This theory assumes that GPTs can be identified. While the growth implications of GPTs are well documented in theory (Elhanan Helpman, 1998) empirical evidence remains sparse. With the exception of Nathan Rosenberg and Manuel Trajtenberg (2001), who analyze the example of the Corliss steam engine, existing empirical work is based largely on data with a high level of aggregation (Boyan Jovanovic and Peter Rousseau, 2003; N. F. R. Crafts and Terrence Mills, 2004). This leaves a gap in our understanding of the micro-foundations of GPTs. Although Richard Lipsey et al. (1998) define GPTs by four criteria (a wide scope for improvement and elaboration, applicability across a broad range of uses, potential for use in a wide variety of products and processes, and strong complementarities with existing or potential new technologies), these claims have not been verified systematically. This paper uses historical patent citation data to test whether electricity, as the canonical example of a General Purpose Technology, matches the current criteria of GPTs. We use a sample of American patents assigned to publicly traded companies in biennial years of the 1920’s to check which of four industry categories (electricity, chemicals, mechanical, and other) most closely matches the key elements of GPTs. We analyze the characteristics of our patents at their grant date and trace knowledge embodied in these patents through citations in patent grants between 1976 and 2002. Our sample consists of 1,867 U.S. patents from the 1920’s, and 3,400 forward citations to these patents. Our aim is both to help inform the way that growth theorists model the development of GPTs and to enhance our understanding of technological progress in the last century more generally. The 1920’s are an appropriate decade for our hypothesis test because they were a period of exceptional inventive activity and productivity increases. David (1991) credits electricity with a central role in U.S. productivity growth in the 1920’s, 40 years after Thomas Edison’s patent of the filament lamp. But the 1920’s was not just a decade of electrification. Alexander Field (2003) conjectures that a “larder stock” of 1920’s innovations may have accelerated productivity growth during the 1930’s, a period he describes as “the most technologically progressive decade of the [20th] century.” Electricity made it possible for workflows in the factory to be restructured away from traditional energy sources such as water power. However, other advances, especially those in fuel, automobiles, trucks, and tires, had a significant (possibly even greater) impact on spatial allocation and the structure of economic life. Benzene-powered motor vehicles, with rubber tires and lighter metal casings, depended on chemical rather than electrical inventions. Our results contradict the hypothesis that electricity was a GPT according to conventional definitions such as those of Timothy Bresnahan and Trajtenberg (1995) or Lipsey et al. (1998). We find that electricity patents were broader in * Moser: Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA 02142-1347; Nicholas: The Brattle Group, 353 Sacramento Street, Suite 1140, San Francisco, CA 94111. We thank Bhaven Sampat for helpful comments and Ellyn Boukus for excellent research assistance.

Why Schumpeter was Right: Innovation, Market Power, and Creative Destruction in 1920s America

Are firms with strong market positions powerful engines of technological progress? Joseph Schumpeter thought so, but his hypothesis has proved difficult to verify empirically. This article highlights Schumpeterian market-power and creative-destruction effects in a sample of early-twentieth-century U.S. industrial firms; his contention that an efficiently functioning capital market has a positive effect on the rate of innovation is also confirmed. Despite market power abuses by incumbents, the extent of innovation stands out: 21 percent of patents assigned to the firms sampled between 1920 and 1928 are cited in patents granted between 1976 and 2002.

Clogs to Clogs in Three Generations? Explaining Entrepreneurial Performance in Britain Since 1850

Research into culture and entrepreneurship in Britain has been dominated by casual empiricism. This article shows the benefits of using a new method. Lifetime wealth accumulation is specified as a measure of entrepreneurial performance, and applied to data collected from dictionaries of business biography. Industry, region, and religious dissent are ruled out as explanations of entrepreneurial performance. Education and entrepreneurial type are the important predictors. Firm inheritors and those receiving a high-status education experienced relatively low lifetime rates of wealth accumulation. Firm founders, managers, and individuals with a lower-status education were comparatively successful.

The Role of Independent Invention in U.S. Technological Development, 1880–1930

Why did independent inventors account for over half of U.S. patents by 1930 and more than three times the number granted to R&D firms? Using new data on patents and historical patent citations, I show that independents supplied high-quality innovations to a geographically broad market for ideas. Those close to large urban centers developed some of the most significant technological advances. Demand for independent inventions remained high during the growth of the corporate economy as firms continued to acquire external innovations that complemented formal R&D. Despite their relative decline, independents remained central to the process of technological development. “The statement sometimes is made that ‘the day of the genius in the garret is done.’ Nothing could be further from the truth.†William A. Kinnan, First Assistant Patent Commissioner, New York Times, December 18th, 1927

Prizes, Publicity, and Patents: Non-Monetary Awards as a Mechanism to Encourage Innovation

This paper exploits the selection of prize-winning technologies among exhibitors at the Crystal Palace Exhibition in 1851 to examine whether—and how—ex post prizes that are awarded to high-quality innovations may encourage future innovation. U.S. patent data indicate a 40 per cent increase after 1851 in patenting for prize-winners compared with other exhibits. Results are robust to controlling for technology-specific pre-trends and for the quality of patents. A comparison of changes in patenting for prize-winners with changes for technologies that were described on the front page of the Scientific American suggests that publicity for promising research fields may be an important mechanism by which ex post prizes encourage future innovation.

Real Estate Prices During the Roaring Twenties and the Great Depression

Using new data on market-based transactions we construct real estate price indexes for Manhattan between 1920 and 1939. During the 1920s prices reached their highest level in the third quarter of 1929 before falling by 67 percent at the end of 1932 and hovering around that value for most of the Great Depression. The value of high-end properties strongly co-moved with the stock market between 1929 and 1932. A typical property bought in 1920 would have retained only 56 percent of its initial value in nominal terms two decades later. An investment in the stock market index (including dividends) would have outperformed an investment in a typical property (including net rental income), by a factor of 5.2 over our time period.

Wealth Making in Nineteenth-and Early Twentieth-Century Britain: Industry v. Commerce and Finance

This paper refutes the hypothesis put forward by W.D. Rubinstein that a disproportionately large share of Britains wealth makers were active in commercial and financial trades in London. We use a data set of businessmen active in nineteenth- and early twentieth-century Britain and quantitative methods to show that the pattern of wealth holding was much more diverse than supposed by Rubinstein. A large fortune could be made in a variety of regions and occupations. Big industrialists active in the provinces were equally capable of generating wealth similar in size and significance to the City elite. More generally, London was not the centre of wealth making in this period. Neither was there a subordination of industrial and manufacturing to commercial and financial wealth.

Did R&D Firms Used to Patent? Evidence from the First Innovation Surveys

Matching 2,777 R&D firms in surveys conducted by the National Research Council between 1921 and 1938 with U.S. patents reveals that 59 percent of all firms and 88 percent of publicly traded firms patented. These shares are much higher than those observed for modern R&D firms. Industry, firm size and the location of R&D facilities relative to major cities are shown to be important determinants of the propensity to patent. The effect of these factors remained constant across the 1920s and the Depression years suggesting that the tradeoff between patent disclosure and secrecy did not change over time.

Entrepreneurs and business performance in nineteenth century France

A popular explanation for the supposed ‘delayed industrialisation’ of the nineteenth century French economy has been the inappropriate attitudes and actions of the managerial classes and family firms. To address these claims we model the supply and demand for entrepreneurship and also management success. We analyse a data set of 244 nineteenth century French businessmen, showing that on the demand side textiles offered greater, and iron and steel less, than average opportunities. On the supply side, secondary and university education were negatively associated with starting a successful firm, as was a father already in business. Surprisingly, Protestantism made no difference to the chances of setting up a firm. In the business performance model, the longer the period the businessman was active, the greater the accumulation – not consistent with life-cycle models of saving. Second, those who started their own business, compared with entering an existing firm, left less wealth at death than they could have expected to acquire over a normal lifetime, other things being equal. Unlike formal education, training – mainly apprenticeship – was associated with greater wealth at death. The pace of wealth accumulation suggests a dynamic sector during the Second Empire, at least where larger businesses were concerned.