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Diversity and Technological Progress

Diversity and Technological Progress

(p.319) 6. Diversity and Technological Progress
The Rate and Direction of Inventive Activity Revisited
Daran Acemoglu
University of Chicago Press

This chapter discusses the relationship between innovation and incumbency, but places emphasis on a dynamic setting that incorporates not simply the rate but also the direction of innovative activity: an environment where there are multiple potential “research lines,” but only one is commercially active at any point in time. There is a chance that the commercially active research line will at some point be made obsolete (e.g., as the result of exhausting a natural resource), and the chapter focuses on the underlying incentives to invest in the alternative (but not yet commercially viable) technology line. Because the returns from innovation are only realized for those generations where the research line is commercially active, the private returns to innovation in the alternative line will be low unless there is a high likelihood that the currently active line is about to made obsolete.

Keywords:   diversity, technological progress, innovation, incumbency

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