Deck 11: Economics of Technology and Innovation

Question 1

At the firm level, under what circumstances may innovation exhibit counter-cyclical trends?

Answer 1

Economists analyze the relationship between innovation and the business cycle. One view is that innovation is cyclical: during economic downturns, firms reduce their level of investment in innovation. Another view is that innovation is counter-cyclical: economic downturns stimulate investment in innovation. Which view is correct? At it stands, research on this relationship finds that, while some firms are persistent in their levels of investment spending on innovation during economic downturns, others are not. Several factors impact the decision, including firm-specific characteristics, stage of development, management attitudes, path-dependent nature of innovation, and industry dynamics such as technological advance, aggregate demand, and profit opportunities.

Question 2

In the process of technological advance, list and describe each stage.

Answer 2

According to Schumpeter's framework, the three stages of technological advance include invention, innovation, and diffusion. In the initial stage, we observe the first occurrence of an idea for a new product or process. Then, the innovation stage constitutes the first attempt to carry out the new product or process into practice. Finally, with diffusion, a new product or method may be adopted or rejected, depending on market outcomes, network effects, and best practices.

Question 3

In the process of technological advance, what are the factors that determine whether an innovation will be adopted or rejected? If an innovation is rejected, what happens next?

Answer 3

The three elements that directly impact an innovation's adoption or rejection are market outcomes, network effects, and best practices. When an innovation is rejected, it is revisited in the invention stage, which also involves research and development. From this juncture, necessary analyses can be performed to determine the salience of the innovation, at which point it is again processed through to the adoption/rejection phase.
It is through this strategic approach that innovations ultimately come to market, though certainly there are dynamic effects as a result of varying outside forces. For example, while there is always a sense of urgency for profit-maximizing firms to realize ongoing innovation (i.e. improved technology, more efficient labor allocation, etc.), the critical importance of rolling out a vaccine during the coronavirus pandemic may have impacted the rate at and quality with which Schumpeter's framework operated in this context.

Question 4

List and describe the attributes of innovation. With respect to relative importance, which attributes are more crucial for the process of innovation?

Question 5

Discuss the three framings of innovation. How does the third framing provide context for the impact of a disease pandemic on innovation? To inform your answer, read the article listed in the References section by Schot and Steinmueller (2018).

Question 6

With respect to theories of economic growth, how important is innovation?

Question 7

How might a global network of innovation address public health problems that result from a pandemic more efficiently than a national network of innovation? What economic and technological factors are important?

Question 8

Describe the attributes of the model of innovation networks that includes orchestrating hubs. Do situations exist in which an orchestrating hub consisting of one firm serves as a superior innovation generator than an orchestrating hub of several firms?

Question 9

With respect to the coronavirus pandemic, identify an innovation that addressed an economic or public health problem. What did the innovation address? Where did the innovation emerge? How did the innovation occur? Why was the innovation adopted and not rejected?

Question 10

After a crisis, why do some innovations lead to lasting effects?