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Focusing device as innovation mechanism and cluster growth

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  • Tsutomu Harada

Abstract

This paper models a focusing device of innovation in which a cluster has an o-ring type production function and each technology component endogenously upgrades its quality. We show that provided the magnitude of innovation is the same across technology components, competitive equilibrium is an efficient mechanism by which core technology-driven innovations emerge with expanding inequality among clusters. Our result is in sharp contrast to bottleneck-removed innovation which is widely accepted. The inefficiency arises, however, when low-powered incentives, such as cost plus contracting, are employed to reward innovation. In this case, the corresponding factor price provides erroneous information regarding the potential benefits of innovation, which should be corrected by some form of policy intervention.

Suggested Citation

  • Tsutomu Harada, 2014. "Focusing device as innovation mechanism and cluster growth," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 49-62, January.
    • Handle: RePEc:taf:ecinnt:v:23:y:2014:i:1:p:49-62
    DOI: 10.1080/10438599.2013.806407
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