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Innovation and Public Policy

Paper Session

Sunday, Jan. 7, 2024 1:00 PM - 3:00 PM (CST)

Grand Hyatt, Texas Ballroom Salon F
Hosted By: American Economic Association
  • Chair: Erik Brynjolfsson, Stanford University

Financial Barriers to Green Innovation

Philippe Aghion
,
College of France, INSEAD and London School of Economics
Antonin Bergeaud
,
HEC Paris
Maarten De Ridder
,
London School of Economics
John Van Reenen
,
London School of Economics

Abstract

What are the barriers that prevent optimal investment in green technologies? In this paper, we
show that climate-enhancing innovation is disproportionately hampered by financial constraints.
Using administrative micro data for France and Germany, we show that firms who’s lenders tighten
credit primarily green innovation as a result. Innovation in other technologies is not significantly affected. We then rationalize these empirical findings using a new theory of directed technological change, in which firms choose how to allocate their research and development between projects that cause technological progress in green or non-green sectors.

Data and Markups: A Macro-Finance Perspective

Jan Eeckhout
,
Pompeu Fabra University
Laura Veldkamp
,
Columbia University

Abstract

How can we measure the extent to which data-intensive firms are using their market power?
Economists typically look to markups as evidence of market power. Using a simple model
with firms that price risk in their capital allocation and production decisions, we highlight the
competing forces that make markups an unreliable measure of data-derived market power.
Instead, we show how markups measured at different levels of aggregation reflect data and
distinguish data from other intangible investments. These findings both reconcile seemingly
contradictory empirical markup evidence and guide us to new ways of measuring data and its
effects on markets.

Competition and Innovation under Credit Constraints

Wang Jin
,
Stanford University
Frank Li
,
University of British Columbia and Stanford University
Georgios Petropoulos
,
Massachusetts Institute of Technology and Stanford University

Abstract

This paper studies the relationship between product market competition and innovation under the presence of financial constraints. We develop a step-by-step model to show that while the direct effect of financial constraints on innovation is negative, they could incorporate an indirect positive effect conditional on market competition. As competition increases, firms have greater incentives to innovate and improve their market position with the increasing catching-up cost (by their competitors) due to financial constraints. In other words, financial constraints increase the first-mover innovator’s advantage, which is strictly increasing in the level of market competition. We confirm the main predictions of our model using data from US public firms and patent data from the USPTO. We also discuss the important policy implications of our findings for competition policy at times of financial distress.

The Diffusion of Disruptive Technologies

Nicholas Bloom
,
Stanford University
Tarek Alexander Hassan
,
Boston University
Aakash Kalyani
,
Boston University
Josh Lerner
,
Harvard Business School
Ahmed Tahoun
,
London Business School
Marcela Mello
,
Harvard Business School

Abstract

We identify phrases associated with novel technologies using textual analysis of patents, job postings, and earnings calls, enabling us­ to identify key stylized facts on the diffusion of jobs relating to new technologies. First, the development of disruptive technologies is geographically concentrated, more so even than overall patenting. 53% of disruptive technologies come from just two U.S. locations, Silicon Valley and the North-East corridor. Second, as the technologies mature and the number of new related jobs grows, hiring spreads geographically. But this process is very slow, taking around 50 years to disperse fully. Third, while initial hiring is concentrated in high-skilled jobs, over time the mean skill level in new positions declines, driven by the reduced importance of positions associated with research, development, and production of technologies. At the same time, the geographic diffusion of low-skilled positions is significantly faster than higher-skilled ones. The pioneering locations where initial discoveries were made retain their leading positions among high-paying positions for decades.

Where Have All the "Creative Talents" Gone? Employment Dynamics of U.S. Inventors

Ufuk Akcigit
,
University of Chicago
Nathan Goldschlag
,
U.S. Census Bureau

Abstract

How are inventors allocated in the US economy and does that allocation affect innovative capacity? To answer these questions, we first build a model of creative
destruction where an inventor with a new idea has the possibility to work for an
entrant or incumbent firm. If the inventor works for the entrant the innovation is
implemented and the entrant displaces the incumbent firm. Strategic considerations encourage the incumbent to hire the inventor, offering higher wages, and then
not implement the inventor’s idea. To test this prediction, we combine data on the
employment history of over 760 thousand U.S. inventors with information on jobs
from the Longitudinal Employer-Household Dynamics (LEHD) Program at the U.S.
Census Bureau. Our results show that (i) inventors are increasingly concentrated
in large incumbents, less likely to work for young firms, and less likely to become
entrepreneurs, and (ii) when an inventor is hired by an incumbent, compared to a
young firm, their earnings increases by 12.6 percent and their innovative output de-
clines by 6 to 11 percent. We also show that these patterns are robust and not driven
by life cycle effects or occupational composition effects.

Discussant(s)
Carolyn Stein
,
University of California-Berkeley
Chad Syverson
,
University of Chicago
Tania Babina
,
Columbia University
Shane Greenstein
,
Harvard Business School
Josh Lerner
,
Harvard Business School
JEL Classifications
  • O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights
  • O4 - Economic Growth and Aggregate Productivity