What is Innovation Economics

[edit]The emergence of the theory of innovation economics Innovation is a very broad concept that applies to many fields. In the category of economics, the Austrian economist J. A. Schumpeter first put forward the basic concepts and ideas of innovation in his book "Theory of Economic Development" published in 1912, which formed the initial innovation theory. 1939 and 1942 Schumpeter published two monographs "Economic Cycle" and "Capitalism, Socialism, and Democracy" respectively, which supplemented and perfected the theory of innovation, and gradually formed a unique innovation economics theory based on the innovation theory. Schumpeter published two monographs on innovation theory in 1939 and 1942 respectively, which added and improved the innovation theory and gradually formed a unique innovation economics theory system based on the innovation theory. The content of Schumpeter's innovation theory mainly includes: 1. Starting from the production function, studying the new combination realized by the change of production factors and production conditions. 2. Its concept of innovation adheres to the viewpoint of development, and emphasizes that the new combination that realizes innovation is generated from the old combination through continuous adjustment in small steps. 2. It is proposed that innovation is the function of the entrepreneur, and that it is the entrepreneur's new combination of factors of production, i.e., the entrepreneur introduces a new combination of factors of production and conditions of production into the production system that has never existed before, thus realizing the dynamism and circularity of economic development. 3. It is proposed that innovation is a process, a process in which innovators, imitators, and improvers compete with and cannibalize each other, and this process is the process of innovation development and maturity. Schumpeter's research on the theory of innovation in the field of economics linked innovation and enterprise production, emphasized the important role of entrepreneurs, and established the initial system of the theory of the economics of innovation, which provided a mature theoretical basis for the continuation of research by later generations. His followers developed Schumpeter's theory of innovation economics into two important theoretical branches of contemporary Western economics: the economics of technological innovation, which takes technological change and technology diffusion as its object; and the economics of institutional innovation, which takes institutional change and system formation as its object. [edit paragraph] Research on the theory of economics of technological innovation After the 1950s, with the rapid development of science and technology, especially with the rise of a new round of scientific and technological revolution centered on microelectronics technology, the economy of many countries appeared for up to 20 years of high-speed growth of the golden period, technological innovation on the human society and the economic development of the impact of the more and more. Western economists began to re-examine Schumpeter's innovation theory, and linked technological innovation with economic growth, thus the emergence of technological innovation theory. The research on the theory of technological innovation in western economics has mainly gone through the following stages: 1. Taking technological progress as a variable and constructing a production function for research The research at this stage mainly focuses on effectively combining economics and statistical theory, and explaining the causes of economic growth through statistics by relying on the historical data of the economic sector In 1957, Solow published "Technological Change and Aggregate Production" in the Review of Economics and Statistics. In 1957, Solow published "Technological Change and the Aggregate Production Function" in the Review of Economics and Statistics, which improved the Cobb-Douglas production function form itself and the restriction of "constant level of technology", derived the growth rate equation from Hicks' emerging technological progress, analyzed the role of technological progress, and pointed out the great contribution of technological progress in economic growth. In the case of output-growing technical progress, the technical change term keeps the marginal rate of substitution constant and simply increases or decreases the output that can be obtained from given inputs, Solow wrote the production function as: Y =A\boldsymbol{f} (K,L) where Y, K, L, and A stand for output, capital, labor, and the level of technology, respectively. By empirically analyzing the development of labor productivity in the private non-agricultural economy of the United States between 1909 and 1949, Solow found that total output per person per hour (GNP) doubled during this period, with technological progress accounting for 87.5% of the contribution, while the remaining 12.5 relied on an increase in the amount of capital input. Accordingly, Solow further proposed: technological innovation is the endogenous variable of economic growth, is the basic factor of economic growth; technology and other commodities as in bringing innovation gains at the same time, but also subject to non-exclusivity, externality, and other market failure factors, appropriate government intervention will greatly promote technological innovation. And the famous Solow model of technological progress was established, which is specially used to measure the contribution rate of technological progress to economic growth. 2. Research on the imitation and diffusion of technological innovation as the object The research at this stage is not on the economic growth brought about by technological progress itself, but on the diffusion of technological progress to the promotion of economic growth. How to realize the diffusion of technology among sectors is the focus of this stage of research. One of the most representative is Mansfield's technology diffusion model. Mansfield's development of the theory of technological innovation is mainly a study of imitation (after a firm first adopts a new technology, other firms follow its example and also adopt this new technology) and conformity (after a firm adopts a new technology, other firms do not imitate it and still use the original technology), the rate of imitation is the rate of adoption of new technology by other firms following the example of the firm that first adopts the new technology, the rate of adoption by other firms. This is the key to how a technological innovation is gradually diffused in the sector and successively adopted by other firms. Mansfield's model of technology diffusion attempts to show how long it takes for a new technology to be adopted by the majority of firms in the sector after it is first adopted by a particular firm. The reasons for the wide variation in imitation rates can be explained by the analysis and estimation of the factors involved in the technology diffusion model. Since Mansfield's analysis is based on some purely theoretical assumptions, which are quite far from reality, his model of technology diffusion is a theorized model, and the technology diffusion studied is diffusion within a sector. In fact, technology promotion is not only limited within the sector, but can be promoted in the whole industry and even the whole economic and social environment. 3. Research on the relationship between technological progress and market structure as an object After the 1970s, the market as a factor that can not be ignored by more economists have paid attention to. Through the monopoly and competition in two different market structure, the economic growth brought about by technological progress of the study, economists realize: the market structure of the impact of technological progress greatly restricts its role in promoting economic growth. Economists M. Carman, N. Schwartz and others have studied the process of technological innovation from the perspective of monopoly and competition, explored the relationship between technological innovation and market structure, and proposed the type of market structure that is most conducive to technological innovation.M. Carman, N. Schwartz believe that the factors that constrain and influence technological innovation are: first, the strength of the degree of competition in the market; second, the size of the enterprise; third, the strength of monopoly power. strength or weakness of the power. They divided technological innovation into two categories: one is the innovation measures taken by the lure of the expected monopoly profits, the so-called monopoly prospect-driven innovation; the other is the innovation measures forced by the threat of competitors, the so-called competition prospect-driven innovation. In their view, both types of innovation are indispensable for the continuity of innovative activities in society. This is because if there are only monopoly prospect-driven innovations, once the monopoly power of a firm has increased enough to ensure the acquisition of monopoly profits, innovative activities will decay or even stop; whereas if there are only competition prospect-driven innovations, all firms will only want to be imitators that cost less, rather than innovators that cost more.This analysis by M. Carman and N. Schwartz is intended to further argue that monopoly This analysis by M. Kaman and N. Schwartz aims to further argue that monopolistic markets are the most suitable type of market structure for technological innovation. 4. Research on the state as the main body of technological innovation Schumpeter once pointed out in his theory of innovation economics that innovation is the function of entrepreneurs. However, after the empirical analysis of the characteristics of innovation activities in Japan, the United States and other countries and regions, British scholar Christoph Freeman believes that technological innovation is not only the credit of entrepreneurs, it is not the isolated behavior of enterprises, but is promoted by the national innovation system. NIS is a comprehensive system of actors, relationship networks and operation mechanisms that participate in and influence the allocation of innovation resources and the efficiency of their utilization, in which innovation subjects such as enterprises and other organizations, through the arrangement of the national system and their interactions, promote the innovation, introduction, diffusion and application of knowledge, so as to make the technological innovation of the whole country achieve better performance. The theory of national innovation system focuses on analyzing the relationship between technological innovation and the actual performance of national economic development, emphasizes the impact of national proprietary factors on technological innovation, and considers the national innovation system as a series of ****same socio-economic goals established by the government, enterprises, university research institutions and intermediary institutions in search of a series of ****same socio-economic goals, and takes innovation as a key driving force system for the country's change and development. As a result, Freeman put forward the national innovation system theory of technological innovation, which organically combines the incentive mechanism of the main body of innovation with the external environmental conditions, and successively develops the concepts and branch theories such as regional innovation and industrial cluster innovation. [Editorial] Research on the theory of institutional innovation economics After the 1960s, through the definition of the corporate environment and its study of the dynamics with the organizational system, the theoretical community generally believes that the environment and the organizational system is an interactive matching relationship, and the two must be adapted to each other. Grove put forward the concept of "three-dimensional" environmental analysis, that any environment can be analyzed from three dimensions, which are: the dynamics of the environment, the complexity of the environment and the capacity of the environment. This theory makes people more conscious of the fact that it is impossible for the environment to adapt to the organizational system, and in order to ensure the sustainable growth of the enterprise, it is necessary to carry out the innovation of the organizational system. American economists Lance Davis and Douglas Noe, published in 1971, "institutional change and U.S. economic growth", the use of neoclassical economic theory of general static equilibrium and comparative static equilibrium methods, institutional innovation made a more systematic elaboration. The theory suggests that institutional innovation is a change in an existing system that enables the innovator to obtain additional benefits. It is often the result of a new invention in terms of adopting an organizational form or a form of business management, and institutional innovation becomes possible only when the expected net benefits exceed the expected costs, and technological innovation needs to be combined with institutional innovation, which is the guarantee of technological innovation. They proposed that the main factors contributing to system renewal are: First, economies of scale. The expansion of the market scale, the increase in the volume of commodity transactions, to promote institutional change, reduce the cost of business management, to obtain more economic benefits. The second is the economy of technology. The development of production technology and industrialization, the increase of urban population, the expansion of the scale of enterprises, prompting people to go to institutional innovation, in order to obtain new potential economic benefits. Third, rigidity of expected returns. Institutional change measures taken by social group forces to prevent a decline in their expected returns. For example, when inflation continues to grow, those with fixed incomes such as wages and interest demand a system of income indexation to protect their real incomes from declining or from declining too fast and too much due to inflation. Lance Davies and Douglas Noah further divided the whole process of institutional innovation into five stages: the first stage is the formation of the "first action group" stage. The first stage is the formation of the "first action group". The so-called "first action group" refers to those who can foresee the potential economic benefits of the market and realize that such potential benefits can be obtained by carrying out institutional innovation. They are the decision-makers, initiators and promoters of institutional innovation, and at least one of their members is what J. Schumpeter called a risk-taking "entrepreneur" with keen observation and organizational skills. The second stage is the stage in which the "first action group" proposes a program of institutional innovation. The first stage is to come up with an institutional innovation program and then move on to the next stage of innovation activities. The third stage is the stage of comparison and selection of the various innovation options proposed by the "first action group". Comparison and selection of options must be in accordance with the economic principle of maximizing benefits. The fourth stage is the formation of the "second action group". The so-called "second action group" refers to the organizations and individuals who help the "first action group" to obtain economic benefits in the process of institutional innovation. This group can be a government agency or a civil society organization or individual. The fifth stage is the stage in which the "first action group" and the "second action group" make collaborative efforts to implement the institutional innovation and turn it into reality. While affirming the decisive role of institutional innovation in technological innovation, the theory of institutional innovation does not deny the pervasive impact of technological innovation on the benefits and costs of institutional innovation arrangements, thus making possible the interaction of factors within the theory. Technological innovation not only increases the potential profits from changes in institutional arrangements, but also reduces the operating costs of certain institutional arrangements, thus making it profitable to establish more complex economic organizations.