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The Theory of Industrial Organization

We use an innovative survey tool to collect management practice data from 732 medium sized manufacturing firms in the US, France, Germany and the UK. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, sales growth and survival rates. Management practices also display significant cross-country differences with US firms on average better managed than European firms, and significant within-country differences with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when (a) product market competition is weak and/or when (b) family-owned firms pass management control down to the eldest sons (primo geniture). European firms report lower levels of competition, while French and British firms also report substantially higher levels of primo geniture due to the influence of Norman legal origin and generous estate duty for family firms. We calculate that product market competition and family firms account for about half of the long tail of badly managed firms and up to two thirds of the American advantage over Europe in management practices.

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Measuring and Explaining Management Practices Across Firms and Countries

Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process.

This paper describes the correlations between inequality and the growth rates in cross-country data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: Changes in inequality (in any direction) are associated with reduced growth in the next period. The estimated relationship is robust to variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model, although, as we point out, efforts to interpret this model causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.

Inequality and Growth: What Can the Data Say?

Technology's contribution to economic growth and competitiveness has been the subject of vigorous debate in recent years. This book demonstrates the importance of a historical perspective in understanding the role of technological innovation in the economy. The authors examine key episodes and institutions in the development of the U.S. research system and in the development of the research systems of other industrial economies. They argue that the large potential contributions of economics to the understanding of technology and economic growth have been constrained by the narrow theoretical framework employed within neoclassical economies. A richer framework, they believe, will support a more fruitful dialogue among economists, policymakers, and managers on the organization of public and private institutions for innovation. David Mowery is Associate Professor of Business and Public Policy at the School of Business Administration, University of California, Berkeley. Nathan S. Rosenberg is Fairleigh Dickinson Professor of Economics at Stanford University. He is the author of Inside the Black Box: Technology and Economics (CUP, 1983).

Technology and the Pursuit of Economic Growth.

https://www.nber.org/system/files/working_papers/w20392/w20392.pdf

Did bank distress stifle innovation during the Great Depression

This article examines the stock market's changing valuation of corporate patentable assets between 1910 and 1939. It shows that the value of knowl? edge capital increased significantly during the 1920s compared to the 1910s as investors responded to the quality of technological inventions. Innovation was an important driver of the late 1920s stock market runup, and the Great Crash did not reflect a significant revaluation of knowledge capital relative to physical capital. Although substantial quantities of influential patents were accumulated during the post-crash recovery, high technology firms did not earn significant excess returns over low technology firms for most of the 1930s.

Does Innovation Cause Stock Market Runups? Evidence from the Great Crash

We examine prizes as an inducement for innovation using a novel dataset of awards for inventiveness offered by the Royal Agricultural Society of England from 1839 to 1939. At annual shows the RASE held competitive trials and awarded medals and monetary prizes (exceeding one million pounds in current prices) to spur technological development. We find large effects of the prizes on contest entries, especially for the Society's gold medal. Matching award and patent data, we also detect large effects of the prizes on the quality of contemporaneous inventions. These results hold even during the period when prize categories were determined by a strict rotation scheme, thus overcoming the potential confounding effect that awards may have targeted "hot" technology sectors. Our evidence suggests that prize awards can be a powerful mechanism for encouraging competition and that prestigious non-pecuniary prizes can be a particularly effective inducement for innovation.

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Inducement Prizes and Innovation

General purpose technologies (GPTs) are credited with generating the increasing returns that drive endogenous growth. For example, Paul David (1991) explains the surge in U.S. productivity during the 1920’s as a delayed response to the introduction of the electric dynamo in the 1880’s. To the extent that GPTs yield large positive externalities on a wide range of industries some time after they are discovered, individual inventors are likely to underinvest in them, and government intervention may be necessary to reach optimal levels of investment in research and development. This theory assumes that GPTs can be identified. While the growth implications of GPTs are well documented in theory (Elhanan Helpman, 1998) empirical evidence remains sparse. With the exception of Nathan Rosenberg and Manuel Trajtenberg (2001), who analyze the example of the Corliss steam engine, existing empirical work is based largely on data with a high level of aggregation (Boyan Jovanovic and Peter Rousseau, 2003; N. F. R. Crafts and Terrence Mills, 2004). This leaves a gap in our understanding of the micro-foundations of GPTs. Although Richard Lipsey et al. (1998) define GPTs by four criteria (a wide scope for improvement and elaboration, applicability across a broad range of uses, potential for use in a wide variety of products and processes, and strong complementarities with existing or potential new technologies), these claims have not been verified systematically. This paper uses historical patent citation data to test whether electricity, as the canonical example of a General Purpose Technology, matches the current criteria of GPTs. We use a sample of American patents assigned to publicly traded companies in biennial years of the 1920’s to check which of four industry categories (electricity, chemicals, mechanical, and other) most closely matches the key elements of GPTs. We analyze the characteristics of our patents at their grant date and trace knowledge embodied in these patents through citations in patent grants between 1976 and 2002. Our sample consists of 1,867 U.S. patents from the 1920’s, and 3,400 forward citations to these patents. Our aim is both to help inform the way that growth theorists model the development of GPTs and to enhance our understanding of technological progress in the last century more generally. The 1920’s are an appropriate decade for our hypothesis test because they were a period of exceptional inventive activity and productivity increases. David (1991) credits electricity with a central role in U.S. productivity growth in the 1920’s, 40 years after Thomas Edison’s patent of the filament lamp. But the 1920’s was not just a decade of electrification. Alexander Field (2003) conjectures that a “larder stock” of 1920’s innovations may have accelerated productivity growth during the 1930’s, a period he describes as “the most technologically progressive decade of the [20th] century.” Electricity made it possible for workflows in the factory to be restructured away from traditional energy sources such as water power. However, other advances, especially those in fuel, automobiles, trucks, and tires, had a significant (possibly even greater) impact on spatial allocation and the structure of economic life. Benzene-powered motor vehicles, with rubber tires and lighter metal casings, depended on chemical rather than electrical inventions. Our results contradict the hypothesis that electricity was a GPT according to conventional definitions such as those of Timothy Bresnahan and Trajtenberg (1995) or Lipsey et al. (1998). We find that electricity patents were broader in * Moser: Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA 02142-1347; Nicholas: The Brattle Group, 353 Sacramento Street, Suite 1140, San Francisco, CA 94111. We thank Bhaven Sampat for helpful comments and Ellyn Boukus for excellent research assistance.

Was Electricity a General Purpose Technology? Evidence from Historical Patent Citations

We examine the golden age of US innovation by undertaking a major data collection exercise linking US patents to state and county-level aggregates and matching inventors to Federal Censuses between 1880 and 1940. We identify a causal relationship between patented inventions and long run economic growth and outline a basic framework for analyzing key macro and micro-level determinants. We explore drivers of regional performance including population density, financial development, geographic connectedness and social structure. We then profile the characteristics of inventors and their life cycle, measure the returns to technological development, and document the relationship between innovation, inequality and social mobility. Our new data help to address important questions related to innovation and long-run growth dynamics.

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Tom Nicholas

Papers

Did bank distress stifle innovation during the Great Depression

Does Innovation Cause Stock Market Runups? Evidence from the Great Crash

Inducement Prizes and Innovation

Was Electricity a General Purpose Technology? Evidence from Historical Patent Citations

The Rise of American Ingenuity: Innovation and Inventors of the Golden Age