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The inventor’s role: was Schumpeter right?

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Abstract

According to Schumpeter, the creative process of economic development can be divided into the stages of invention, innovation (commercialization) and imitation. Each stage is associated with specific skills. This paper examines whether Schumpeter’s assertion was correct, i.e. whether the invention and innovation stages should be undertaken by different agents. In addition, we examine whether there is a rationale for the Schumpeterian entrepreneur to include the inventor in the commercialization process. Combining the abilities of the entrepreneur and the inventor may serve to facilitate customer adaptation, strengthen knowledge transfers and reduce uncertainty, thereby expanding market opportunities. Based on a unique database covering Swedish patents granted to individuals and small firms, the empirical analysis shows that profitability increases by 22 percentage points when inventions are commercialized by the entrepreneur instead of by inventors. However, active involvement of the inventor is shown to have a significantly positive impact on profitability, irrespective of commercialization mode.

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Notes

  1. Taking all firms into account, irrespective of size, there has been a clear tendency in the 20th century towards an increased vertical integration of inventive (R&D) and producing activities, according to, for instance, Teece (1988) and Aghion and Howitt (1998). Others challenge those findings and claim that technological progress and institutional changes have facilitated a vertically dispersed production structure (Arora et al. 2001; Grossman and Helpman 2002).

  2. In fact, Teece (2006) stress the importance of empirical research, addressing precisely these issues.

  3. A related strand of the literature focuses on differences in individual capabilities (Carroll and Hannan 2000), or the interaction between the characteristics of opportunity and the characteristics of the people who exploit them (Casson 2005). Schumpeter also considered individual’s psychological capacity as the key in identifying opportunities.

  4. Here we adopt the somewhat modified version, as introduced by Bianchi and Henrekson (2005). See also Giarratana (2004) who, studying a niche of the software industry, show that whether inventors are turned into entrepreneurs depend on entry costs, the “height” of the invention, and property rights.

  5. They were more aligned on other aspects of entrepreneurship. For instance, both Knight and Schumpeter shared the belief that entrepreneurial talent was a scarce resource. Such scarcity is not so much associated with entrepreneurs’ alertness, or with their professionalism, as with their psychology. More recently, Lazear (2005) suggests that entrepreneurs possess more balanced talents that span a number of skills. This could be argued to strengthen their “combinatorial capacity”, as compared to the more limited role of specialists. In the perspective of the issue we raise, the entrepreneur could be viewed as being endowed with multi-task talent, while the inventor is more of a specialist (Lindbeck and Snower 2000).

  6. See Frankel (1955), Teece (1988) and Aghion and Howitt (1992).

  7. Where p = q 0 e + r(E), q 0 > 0. See Aghion and Howitt (1998) for details.

  8. Arora (1995) presents an alternative model for the specific case in which tacit knowledge (embodied in the inventor) can be bundled with arm’s length licensing contracts. The decisive factor is strong IPRs, which promote commercialization and a functioning market for know-how.

  9. Or, as noted in Teece (2006), partly based on Penrose (1959), partly on Schumpeter (1911).

  10. Note Scherer’s (1980) contribution, in which it is claimed that innovative entry by entrepreneurs and innovative entry by large firms seem to fulfill complementary roles in the process of turning an innovation into full-scale, welfare enhancing new production activities. Major innovations often emanate in a serendipitous way from individual entrepreneurs (Baumol 2007).

  11. As noted by Mansfield et al. (1981), it takes imitators about four years to duplicate an invention for approximately 65% of the original costs. Process technology innovation tends to leak somewhat slower than product innovation (Mansfield 1985).

  12. Teece (1986) discusses this in terms of ccumulative innovations.

  13. Mansfield (1968) was perhaps the first to observe that there was no statistical relationship between concentration in an industry and rate of technological change.

  14. See also Gans et al. (2007), analyzing the impact of uncertainty and timing of entry, either as a start-up or in terms of licensing high-technology products.

  15. The type of innovation could also influence the strategic choice of entry, i.e. whether it is radical or incremental and to what extent the innovation challenges technological or organizational knowledge. Innovation characterized as a reshuffling of the way in which different components are linked to each other while the core concept remains—architectural innovation—often takes place in larger firms and gives smaller firms an innovative edge in terms of more flexibility (Henderson and Clark 1990).

  16. We would expect inventors and innovators to be endowed by heterogeneous ability as regards information activities. It depends on their technological and market knowledge, i.e. learning from previous experience and occupation (van Hayek 1937; Frank 1988). Hence, it can be assumed that inventors possess more technological knowledge and less market knowledge, whereas the opposite is the case for the entrepreneur.

  17. Very few studies have used questionnaires. See, for instance, Griliches (1990).

  18. A highly promising and recent research initiative is the PatVal-EU project (Giuri et al. 2007). The ambition is to gather data through questionnaires sent out to a large number of EU-countries (presently six countries are covered). The questionnaire targets inventors and will focus on data related to value of patents, source of innovations, degree and mode of commercialization, etc. Gambardella et al. (2007) implement the PatVal-EU database to analyze the determinants of licensing. Their study deviates from the current insofar as the focus of the current paper is the profitability of commercialization and the role of the inventor in the commercialization process.

  19. In 1998, 2,760 patents were granted in Sweden; 776 of these were granted to foreign firms, 902 to large Swedish firms with more than 1,000 employees, and 1,082 to Swedish individuals and firms with less than 1,000 employees. In the pilot survey carried out in 2002, it turned out that large Swedish firms refused to provide information on individual patents. Furthermore, it proved very difficult to persuade foreign firms to fill in questionnaires about patents. These firms were mostly large multinationals firms. Therefore, the population consists of 1,082 patents granted to Swedish individuals and firms with less than 1,000 employees.

  20. All inventions do not result in patents. However, since an invention, which does not result in a patent, is not registered anywhere, there are two problems in empirically analyzing the invention rather than the patent. First, it is impossible to find these new ideas, products and developments among all firms and individuals. On the other hand, all patents are registered. Second, even if the “inventions” are found, it is difficult to judge whether they are sufficient improvements to be called inventions. Only the national and international patent offices make such judgements. Therefore, the choice of the patent rather than the invention is the only alternative for an empirical study of the commercialization process.

  21. The database was collected in 2003–04. The year the patent is granted is used here, but patents filed in a specific year might have been preferable. The choice of patents granted in a specific year is, however, not a problem in the statistical estimations.

  22. Each patent always has at least one inventor and often also an applying firm. The inventors or the applying firm can be the owner of the patent, but the inventors can also indirectly be owners of the patent, via the applying firm. Sometimes the inventors are only employed in the applying firm which owns the patent. If the patent had more than one inventor, the questionnaire was sent to one inventor only.

  23. The group of individual inventors includes private persons and self-employed inventors as well as two-three inventors who are organized in trading companies or private firms without employees.

  24. For a vast majority of the patents, the commercialization had reached such a stage that there was no uncertainty at all about the performance.

  25. It is very complicated to estimate profit flows, because most firms have many products in their statement of account, and many individuals do not have any statement of account at all.

  26. There were 86 observations in the database, where the owner could not specify the expected profit level of the commercialization. These missing values could also be treated as a fourth, uncertain, outcome of PERFORM. A multinomial logit model, where all four alternatives were included, was estimated. Then, we performed a test for independence of irrelevant alternatives (Hausmann and McFadden 1984). When excluding the uncertain alternative in the multinomial logit model, this test cannot be rejected. Thus, the parameter estimates between the other outcome alternatives are almost unaffected if the uncertain alternative is excluded. Then there is no problem in excluding those patents with unknown profit-levels from the estimations.

  27. Note that this is not a two-step Heckman model. No lambda is computed and used in the second step.

  28. The alternative to measuring the owner’s patent stock at the grant date does not alter the results of the estimations.

  29. A technology class must have at least one observation in each of the three outcome alternatives, to obtain an own technology dummy. Technology classes without enough observations are instead merged with other closely related classes (Breschi et al. 2004).

  30. The difference is that a probit model is used in the first step of the present model, whereas Svensson (2007) used survival models.

  31. GOVRD measures how large a share of the R&D-costs that was financed from the government. Similarly, PRIVRD and OTHRD measure how large shares of this financing were from private venture capitalists and research foundations/universities, respectively. OWNER measures how large a share (in percent) of the patent that is directly or indirectly owned by the inventors. The dummy variable KOMPL takes on the value of 1 if complementing patents are needed to create a product, and 0 otherwise. INVNMBR measures the number of inventors of the patent.

  32. These estimations are available from the authors upon request.

  33. Among the 530 commercialized patents in the sample, there are 460 unique owners (firms/inventors), 418 owners only have one commercialized patent, 29 owners have two patents, and only 13 owners have at least three patents. Dummies can only be assigned to those 42 owners with at least two patents. The multicollinearity problems occurred even when all technology and region dummies were excluded and when dummies were only included for those 13 owners with at least three commercialized patents.

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Acknowledgements

The authors would like to thank Erik Mellander, Magnus Henrekson, Lars Persson and seminar participants at the annual EARIE conference in Valencia, the Max Planck Conference in Bangalore and the Oslo Entrepreneurship Workshop (where the paper was awarded the price of “Best paper in Entrepreneurship and Innovation”), for constructive comments. Jakob Eliasson provided excellent research assistance. The Bank of Sweden Tercentenary Foundation, Marianne and Marcus Wallenberg Foundation, and Torsten and Ragnar Söderberg’s Foundation are acknowledged for generous financial support. Finally, the paper has benefited from insightful comments in the referee process to this journal.

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Authors and Affiliations

  1. Department of Transport and Economics, Leif Lundblad’s Chair in International Business and Entrepreneurship, The Royal School of Technology, 100 44, Stockholm, Sweden

    Pontus Braunerhjelm

  2. Research Institute of Industrial Economics (IFN), P.O. Box 55665, 10215, Stockholm, Sweden

    Roger Svensson

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  1. Pontus Braunerhjelm
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  2. Roger Svensson
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Correspondence to Pontus Braunerhjelm.

Appendix

Appendix

Table 9 Explanatory variables included in the probit sample selection equation
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Table 10 Estimation of dummy variables, model I
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Table 11 Estimation of dummy variables, model II
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Braunerhjelm, P., Svensson, R. The inventor’s role: was Schumpeter right?. J Evol Econ 20, 413–444 (2010). https://doi.org/10.1007/s00191-009-0157-5

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