The return of the Prince of Denmark: a survey on recent developments in the economics of innovation

It is well known that innovation is the engine that drives the growth machine of modern capitalist economies. Therefore, not surprisingly, substantial attention has been devoted by economists to the process behind the production of innovations. Three areas have recently emerged as relevant in the field. These are: the impact of spillovers on productivity; the different forms of R&D cooperation and the role of patents in fostering innovations when these are cumulative. In this paper I summarise the relevant literature in these three areas by discussing where the current literature stands and what are its future developments.

New dimensions on the economics of the entrepreneurial process

This thesis examines the transition of employees into entrepreneurship, with particular emphasis on the role of workplace characteristics in influencing this movement. The first main chapter examines whether the determinants of becoming an intrapreneur differ from those that support transitions into independent entrepreneurship. The results show that intrapreneurs resemble employees rather than entrepreneurs, contrary to what the entrepreneurship theory would suggest. Yet it shows that those intrapreneurs that expect to acquire an ownership stake in the business, unlike the rest of intrapreneurs, possess traditional entrepreneurial traits. Chapter 3 investigates how workers’ degree of specialisation determines their decision to found a firm. It shows that entrepreneurs emerging from small firms, i.e. generalists, transfer knowledge from more diverse aspects of the business and create firms more related to the main activity of their last employer. Workers in large firms, however, benefit from higher returns to human capital that increase their opportunity costs to switch to entrepreneurship. Since becoming an entrepreneur would make part of their specialised skills unutilised, the minimum quality of the idea at which they would be willing to leave will be higher and, therefore, entrepreneurs emerging from large firms will be of highest quality. Chapter 4 analyses whether the reason to terminate an employment contract is associated with the fact that the majority of entrepreneurs appear to set up their business after having worked for a small firm. Moreover, it studies how this pattern varies as the labour market conditions worsen. The effect of layoffs turns out to be a key driver in the entry to entrepreneurship and it is found to exert a greater effect the smaller the firm workers are dismissed from. This has been reflected in an overall larger flow of employees from small firms moving into entrepreneurship over the recession.

The economics of copyright

The copyright industries — such as music, film, software and publishing — occupy a significant and growing share of economic activity. Current copyright law protects the creator for up to 70 years after their death, significantly longer than patent protection (20 years after invention). Copyright law aims to balance the incentive to create new work against the costs associated with high prices and restricted access to this work. This paper reviews the economic issues behind copyright and how these are challenged by changes in technology and market structure. While economics provides a powerful conceptual framework for understanding the trade-offs involved, the paper argues that our empirical knowledge base is very weak. Much more empirical analysis is needed to understand the impacts of changes to copyright legislation. Without such analysis, policy and legal debates will continue to be based largely on anecdote and rhetoric.

Scale and scope economies and the efficient vertical and horizontal configuration of the water industry:a survey of the literature

This paper surveys the literature on scale and scope economies in the water and sewerage industry. The magnitude of scale and scope economies determines the cost efficient configuration of any industry. In the case of a regulated sector, reliable estimates of these economies are relevant to inform reform proposals that promote vertical (un)bundling and mergers. The empirical evidence allows some general conclusions. First, there is considerable evidence for the existence of vertical scope economies between upstream water production and distribution. Second, there is only mixed evidence on the existence of (dis)economies of scope between water and sewerage activities. Third, economies of scale exist up to certain output level, and diseconomies of scale arise if the company increases its size beyond this level. However, the optimal scale of utilities also appears to vary considerably between countries. Finally, we briefly consider the implications of our findings for water pricing and point to several directions for necessary future empirical research on the measurement of these economies, and explaining their cross country variation.

Empirical analysis of human capital development and economic growth in Europe

Recent discussion of the knowledge-based economy draws increasingly attention to the role that the creation and management of knowledge plays in economic development. Development of human capital, the principal mechanism for knowledge creation and management, becomes a central issue for policy-makers and practitioners at the regional, as well as national, level. Facing competition both within and across nations, regional policy-makers view human capital development as a key to strengthening the positions of their economies in the global market. Against this background, the aim of this study is to go some way towards answering the question of whether, and how, investment in education and vocational training at regional level provides these territorial units with comparative advantages. The study reviews literature in economics and economic geography on economic growth (Chapter 2). In growth model literature, human capital has gained increased recognition as a key production factor along with physical capital and labour. Although leaving technical progress as an exogenous factor, neoclassical Solow-Swan models have improved their estimates through the inclusion of human capital. In contrast, endogenous growth models place investment in research at centre stage in accounting for technical progress. As a result, they often focus upon research workers, who embody high-order human capital, as a key variable in their framework. An issue of discussion is how human capital facilitates economic growth: is it the level of its stock or its accumulation that influences the rate of growth? In addition, these economic models are criticised in economic geography literature for their failure to consider spatial aspects of economic development, and particularly for their lack of attention to tacit knowledge and urban environments that facilitate the exchange of such knowledge. Our empirical analysis of European regions (Chapter 3) shows that investment by individuals in human capital formation has distinct patterns. Those regions with a higher level of investment in tertiary education tend to have a larger concentration of information and communication technology (ICT) sectors (including provision of ICT services and manufacture of ICT devices and equipment) and research functions. Not surprisingly, regions with major metropolitan areas where higher education institutions are located show a high enrolment rate for tertiary education, suggesting a possible link to the demand from high-order corporate functions located there. Furthermore, the rate of human capital development (at the level of vocational type of upper secondary education) appears to have significant association with the level of entrepreneurship in emerging industries such as ICT-related services and ICT manufacturing, whereas such association is not found with traditional manufacturing industries. In general, a high level of investment by individuals in tertiary education is found in those regions that accommodate high-tech industries and high-order corporate functions such as research and development (R&D). These functions are supported through the urban infrastructure and public science base, facilitating exchange of tacit knowledge. They also enjoy a low unemployment rate. However, the existing stock of human and physical capital in those regions with a high level of urban infrastructure does not lead to a high rate of economic growth. Our empirical analysis demonstrates that the rate of economic growth is determined by the accumulation of human and physical capital, not by level of their existing stocks. We found no significant effects of scale that would favour those regions with a larger stock of human capital. The primary policy implication of our study is that, in order to facilitate economic growth, education and training need to supply human capital at a faster pace than simply replenishing it as it disappears from the labour market. Given the significant impact of high-order human capital (such as business R&D staff in our case study) as well as the increasingly fast pace of technological change that makes human capital obsolete, a concerted effort needs to be made to facilitate its continuous development.

Internal versus external R&D:a study of R&D choice with sample selection

This paper extends previous analyses of the choice between internal and external R&D to consider the costs of internal R&D. The Heckman two-stage estimator is used to estimate the determinants of internal R&D unit cost (i.e. cost per product innovation) allowing for sample selection effects. Theory indicates that R&D unit cost will be influenced by scale issues and by the technological opportunities faced by the firm. Transaction costs encountered in research activities are allowed for and, in addition, consideration is given to issues of market structure which influence the choice of R&D mode without affecting the unit cost of internal or external R&D. The model is tested on data from a sample of over 500 UK manufacturing plants which have engaged in product innovation. The key determinants of R&D mode are the scale of plant and R&D input, and market structure conditions. In terms of the R&D cost equation, scale factors are again important and have a non-linear relationship with R&D unit cost. Specificities in physical and human capital also affect unit cost, but have no clear impact on the choice of R&D mode. There is no evidence of technological opportunity affecting either R&D cost or the internal/external decision.

Chemical kinetic investigation of a commercial batch reactor process

The aim of this investigation was to study the chemical reactions occurring during the batchwise production of a butylated melamine-formaldehyde resin, in order to optimise the efficiency and economics of the batch processes. The batch process models are largely empirical in nature as the reaction mechanism is unknown. The process chemistry and the commercial manufacturing method are described. A small scale system was established in glass and the ability to produce laboratory resins with the required quality was demonstrated, simulating the full scale plant. During further experiments the chemical reactions of methylolation, condensation and butylation were studied. The important process stages were identified and studied separately. The effects of variation of certain process parameters on the chemical reactions were also studied. A published model of methylolation was modified and used to simulate the methylolation stage. A major result of this project was the development of an indirect method for studying the condensation and butylation reactions occurring during the dehydration and acid reaction stages, as direct quantitative methods were not available. A mass balance method was devised for this purpose and used to collect experimental data. The reaction scheme was verified using this data. The reactions stages were simulated using an empirical model. This has revealed new information regarding the mechanism and kinetics of the reactions. Laboratory results were shown to be comparable with plant scale results. This work has improved the understanding of the batch process, which can be used to improve product consistency. Future work has been identified and recommended to produce an optimum process and plant design to reduce the batch time.

Fluidized bed gasification of biomass

A fluidized bed process development unit of 0.8 m internal diameter was designed on basis of results obtained from a bench scale laboratory unit. For the scaling up empirical models from the literature were used. The process development unit and peripheral equipment were constructed, assembled and commissioned, and instruments were provided for data acquisition. The fluidization characteristics of the reactor were determined and were compared to the design data. An experimental programme was then carried out and mass and energy balances were made for all the runs. The results showed that the most important independent experimental parameter was the air factor, with an optimum at 0.3. The optimum higher heating value of the gas produced was 6.5 MJ/Nm3, while the thermal efficiency was 70%. Reasonably good agreement was found between the experimental results, theoretical results from a thermodynamic model and data from the literature. It was found that the attainment of steady state was very sensitive to a continuous and constant feedstock flowrate, since the slightest variation in feed flow resulted in fluctuations of the gas quality. On the basis of the results a set of empirical relationships was developed, which constitutes an empirical model for the prediction of the performance of fluidized bed gasifiers. This empirical model was supplemented by a design procedure by which fluidized bed gasifiers can be designed and constructed. The design procedure was then extended to cover feedstock feeding and gas cleaning in a conceptual design of a fluidized bed gasification facility. The conceptual design was finally used to perform an economic evaluation of a proposed gasification facility. The economics of this plant (retrofit application) were favourable.

The selection of biodiversity indicators for business landholdings

Businesses are seen as the next stage in delivering biodiversity improvements linked to local and UK Biodiversity Action Plans. Global discussion of biodiversity continues to grow, with the Millennium Ecosystem Assessment, updates to the Convention on Biological Diversity and The Economics of Ecosystems and Biodiversity being published during the time of this project. These publications and others detail the importance of biodiversity protection and also the lack of strategies to deliver this at an operational level. Pressure on UK landholding businesses is combined with significant business opportunities associated with biodiversity engagement. However, the measurement and reporting of biodiversity by business is currently limited by the complexity of the term and the lack of suitable procedures for the selection of metrics. Literature reviews identified confusion surrounding biodiversity as a term, limited academic literature regarding business and choice of biodiversity indicators. The aim of the project was to develop a methodology to enable companies to identify, quantify and monitor biodiversity. Research case studies interviews were undertaken with 10 collaborating organisations, selected to represent =best practice‘ examples and various situations. Information gained through case studies was combined with that from existing literature. This was used to develop a methodology for the selection of biodiversity indicators for company landholdings. The indicator selection methodology was discussed during a second stage of case study interviews with 4 collaborating companies. The information and opinions gained during this research was used to modify the methodology and provide the final biodiversity indicator selection methodology. The methodology was then tested through implementation at a mineral extraction site operated by a multi-national aggregates company. It was found that the methodology was a suitable process for implementation of global and national systems and conceptual frameworks at the practitioner scale. Further testing of robustness by independent parties is recommended to improve the system.

The impact of privatisation and regulation on the water and sewerage industry in England and Wales:a translog cost function approach

After the ten Regional Water Authorities (RWAs) of England and Wales were privatized in November 1989, the successor Water and Sewerage Companies (WASCs) faced a new regulatory regime that was designed to promote economic efficiency while simultaneously improving drinking water and environmental quality. As legally mandated quality improvements necessitated a costly capital investment programme, the industry's economic regulator, the Office of Water Services (Ofwat), implemented a retail price index (RPI)+K pricing system, which was designed to compensate the WASCs for their capital investment programme while also encouraging gains in economic efficiency. In order to analyse jointly the impact of privatization, as well as the impact of increasingly stringent economic and environmental regulation on the WASCs' economic performance, this paper estimates a translog multiple output cost function model for the period 1985–1999. Given the significant costs associated with water quality improvements, the model is augmented to include the impact of drinking water quality and environmental quality on total costs. The model is then employed to determine the extent of scale and scope economies in the water and sewerage industry, as well as the impact of privatization and economic regulation on economic efficiency.

The effects of offshoring to China:reallocation, employment and productivity in Taiwan

We examine the extent to which outward FDI from Taiwan to mainland China has contributed to the rising unemployment rate in Taiwan. Further, it examines whether outward FDI has contributed to productivity growth in Taiwan, and the importance of linkages between sectors in determining these effects. We provide strong evidence that Taiwanese firms have increased their investments in China, and that this has lead to a reduction in employment in such sectors at home. Further, we show that these effects are also translated up the supply chain, such that outward FDI also leads to a reduction in employment upstream in the supply chain.

Local industrial systems and the location of FDI in Italy

This article investigates the determinants of foreign direct investment (FDI)location across Italian provinces. Specifically it examines the relationship between industry- specific local industrial systems and the location of inward FDI. This extends previous analysis beyond the mere density of activity, to illustrate the importance of the specific nature of agglomerations in attracting inward investment. The article develops a model of FDI location choice using a unique FDI database stratified by industry and province. The results also suggest that the importance of agglomeration differs between industries, and offers some explanation for this.