How Innovative Are Innovations? A Multidimensional, Survey-Based Approach

Innovation and Economic Growth, Competition Policy and Antitrust, Intellectual Property and Patents

Article Snapshot

Author(s)

Wesley Cohen, You-Na Lee and John P. Walsh

Source

Measuring and Accounting for Innovation in the 21st Century, Carol Corrado, Javier Miranda, Jonathan Haskel, and Daniel Sichel, eds., University of Chicago Press, 2021

Summary

Innovation can be difficult to measure, and some major technical advances have less impact on social welfare than expected. Surveys of innovation should consider five key factors in assessing the importance of an innovation.

Policy Relevance

Understanding the importance of an innovation is important to guide investment.

Main Points

  • Surveys of innovation often fail to ask respondents to clarify what they mean when they report that they have introduced a new or improved product or process; metrics such as research and development spending and patenting activity do not adequately measure innovation.
     
  • Economists should try to understand how important an innovation will be to better understand which innovations are most worthy of public or private investment.
     
    • High-temperature superconducting materials were less transformative than expected, due to manufacturing difficulties.
       
    • The development of containerized shipping did not require a large inventive step, but had a large impact on economic growth.
       
  • Five features of an innovation are often relevant to assessing its potential social welfare effects, as follows:
     
    • How technically advanced the invention is (“technological significance”).
       
    • How acutely the innovation is needed (“utility”).
       
    • The barriers to commercialization of the innovation ("implementation gap").
       
    • The uniqueness of the innovation (“uniqueness”).
       
    • How easily other firms will be able to copy the innovation (“imitability”).
       
  • A survey of United States-based firms shows that larger firms are more likely to innovate than smaller firms, both in manufacturing and in the service sector; about 16 percent of manufacturing firms and about 18 percent of service firms are innovators.
     
  • The degree to which a firm expects to earn a large proportion of revenues from a new product, and the degree to which the firm must acquire personnel with new skills, new equipment, or new sales outlets to support a new product will help observers assess an innovation’s importance.
     
  • The link between competition and innovation varies depending on the nature of competition within the industry.
     
    • In some industries, firms compete mainly on price and advertising, but in others, innovation is more important.
       
    • In sectors where rival firms are considered highly likely to produce a competing innovation, competition spurs innovation, and there are more innovative firms.
       
  • Innovation surveys should focus on a specific innovation, such as the firm's most important innovation.
     

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