Abstract
Previous research has shown that the distribution of profit outcomes from technological innovations is highly skew. This paper builds upon those detailed findings to ask: what stochastic processes can plausibly be inferred to have generated the observed distributions? After reviewing the evidence, this paper reports on several stochastic model simulations, including a pure Gibrat random walk with monthly changes approximating those observed for high-technology startup company stocks and a more richly specified model blending internal and external market uncertainties. The most highly specified simulations suggest that the set of profit potentials tapped by innovators is itself skew-distributed and that the number of entrants into innovation races is more likely to be independent of market size than stochastically dependent upon it.
Financial support from the Sloan Foundation and the Center for European Economic Research, Mannheim, at earlier stages of this project is gratefully acknowledged.
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Scherer, F.M., Harhoff, D., Kukies, J. (2001). Uncertainty and the size distribution of rewards from innovation. In: Mueller, D.C., Cantner, U. (eds) Capitalism and Democracy in the 21st Century. Physica, Heidelberg. https://doi.org/10.1007/978-3-662-11287-8_10
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DOI: https://doi.org/10.1007/978-3-662-11287-8_10
Publisher Name: Physica, Heidelberg
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