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Jan Fagerberg, Staffan Laestadius and Ben R. Martin

Europe is confronted by an intimidating triple challenge—economic stagnation, climate change and a governance crisis. What is required is a fundamental transformation of the economy to a new "green" trajectory based on rapidly diminishing emission of greenhouse gases, the authors contend. Much greater emphasis on innovation in all its forms (not just technological) is an answer. Following this path would mean turning Europe into a veritable laboratory for sustainable growth, environmentally as well as socially.

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A bird’s-eye view of the economics of knowledge

The Economics of an Emergent System Property

Cristiano Antonelli

This chapter provides a synthesis of the main themes of the economics of knowledge. It recalls the Arrovian analysis of knowledge as an economic good and explores their implications. It also highlights the important role of the constructionist design methodology (CDM) approach that enables us to explore the systemic interaction between the knowledge-generation process and the technology-production function.

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The derived demand for knowledge

The Economics of an Emergent System Property

Cristiano Antonelli

This chapter draws attention to the effects of the economic properties of knowledge on its derived demand, an issue that has not received enough attention in the literature. The results of the analysis suggests that, because of the idiosyncratic – Arrovian – properties of knowledge, a chain of effects takes place: i) in downstream markets the price of goods that have been produced using knowledge as an intermediate good falls; ii) consequently the derived demand in upstream knowledge markets – both within corporations and by them to knowledge-intensive business services (KIBS) – has a lower position and, iii) the price of knowledge is lower than it should be were knowledge a standard good traded in competitive markets; iv) this has negative consequences in terms of adverse selection of large-scale, high-quality research projects but, v) possible compensating effects stemming from the use of knowledge spillovers to generate cheaper knowledge. Such results have important implications for economic policy discussions and decisions.

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Digital knowledge generation and the appropriability trade-off

The Economics of an Emergent System Property

Cristiano Antonelli

The introduction of information and communication technologies (ICT) has changed in depth the organization of the generation of knowledge, reducing significantly knowledge absorption costs and improving knowledge interactions. The digital generation of knowledge relies on the systematic access and use of the stock of quasi-public knowledge. ICT enables us to reconsider the knowledge appropriability trade-off as it helps us to better appreciate the positive role of knowledge spillovers in the recombinant generation of new knowledge alongside the well-known negative effects of the limited appropriability of knowledge on revenues, and hence incentives to innovate. This new analytical framework calls for an augmented role of telecommunications policy that should take into account the positive effects of knowledge connectivity on the generation of knowledge.

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Endogenous Innovation

The Economics of an Emergent System Property

Cristiano Antonelli

This ground-breaking new book builds upon the Schumpeterian creative response. The author shows that firms, in out-of-equilibrium conditions, try and react by means of introducing innovations. The success of their reaction is contingent upon their access conditions to knowledge, which are shaped by the system in which they operate. The emergence of new innovations can, in turn, knock firms further out-of-equilibrium and cause changes in the system properties that govern their access to external knowledge. This path dependent loop of interactions between the system properties and the individual actions of firms, accounts for endogenous innovation and the dynamics of the system.
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Innovation as a creative response

The Economics of an Emergent System Property

Cristiano Antonelli

The chapter uncovers the merits of the essay ‘The creative response in economic history’ published by Joseph Alois Schumpeter in the Journal of Economic History in 1947 and ‘almost’ forgotten since then. Correct appreciation of this contribution is important for two reasons. First, it enables us to better understand the evolution of Schumpeter’s thinking. The 1947 contribution should be regarded as the final attempt to provide a synthesis of his evolving approaches to understanding the origins, causes and consequences of innovation in economics and in the economy. Second, the 1947 essay portrays innovation as the result of a creative reaction conditional on the context in which it takes place, anticipating the notion of innovation as an emergent property of system dynamics.

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Innovation as an emergent system property

The Economics of an Emergent System Property

Cristiano Antonelli

This chapter summarizes the results of Part I and stresses the interdependence between the evolution of properties of the system and the creative reaction of firms.

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The knowledge appropriability trade-off

The Economics of an Emergent System Property

Cristiano Antonelli

This chapter explores the full range of effects of knowledge properties, and explains how properties such as transient appropriability, non-exhaustibility and indivisibility have both negative and positive effects. Knowledge externalities help reduce the cost of knowledge, and imitation externalities reduce revenue from and profitability of innovations. Their effects need to be considered jointly in a single analytical framework. An analysis of their combined effects questions the scope of application of the Arrovian postulate. Policy implications suggest that, along with public interventions designed to support the supply of knowledge and compensate for missing incentives, much attention should be paid to all interventions that favour the dissemination of knowledge, knowledge connectivity of the system and selective support for high-quality research projects.

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Cristiano Antonelli

Building on Schumpeterian and the Marshallian legacies, this chapter elaborates a model of endogenous growth. It provides a systemic explanation for the levels and rates of total factor productivity growth. The generation of technological knowledge consists in the recombination of existing items of heterogeneous technological knowledge that are necessarily possessed by a myriad of agents. As such, much technological knowledge is external to each agent, and yet an essential input. In this context knowledge governance mechanisms play a key role in the identification, recollection and provision of the specific items of necessary technological knowledge external to each agent. Effective knowledge governance mechanisms engender pecuniary knowledge externalities that take place, mainly at the regional level, when and where existing units of external knowledge can be identified, accessed, unbundled and reused at costs that are below equilibrium for the recombinant generation of new technological knowledge.

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A new framework of innovation and knowledge policy

The Economics of an Emergent System Property

Cristiano Antonelli

This chapter highlights the implications of the analysis carried on through the book for a new knowledge and innovation policy framework that includes support for the dissemination and secondary use of external knowledge alongside traditional policies focusing the support to appropriability and the provision of incentives for the generation of new knowledge. The role of telecommunications infrastructure, regulation and policy as a tool for a new knowledge policy is stressed.