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Summary of all lectures and literature 0sv30
All lectures, videos and literature of the course 'economics of innovation' (0sv30). Given at Eindhoven university for the study sustainable innovation.
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Summary bookModule 1: introduction
Article Nauta: deployment led innovation (or ‘mission based
innovation systems’)
The enormous increase of usage of solar, wind and nuclear energy were no accidents.
There were 7 factors that led to this exponential growth:
1. All these projects were designed to get products into the hands of real people, and to
generate deployment
2. The policies set up by governments were made for the long term. Investors will only
enter if they see an opportunity for a longer period of time.
3. Reduction of the barriers of entry. Governments may provide loans to close the gap
between more environmental options, or they may want to create policies that make
it easier for companies to invest.
4. Support early adopters. Decrease the risks costumers have to take. Make the
infrastructure up to speed, or provide loans for the early customers.
5. Generate education. Let people gain knowledge on the topic, in that way more
innovators will innovate.
6. Make the market more attractive for startups. Startup companies can threaten the
existing players. Do this by creating investment fund, a good legal setup, etc.
7. Countries should use their strengths. Netherlands is under water, and Denmark is
great with wind energy.
Overall: good policies are important. That will generate more startups, more innovation,
more deployment, etc.
Video 1: introduction
The entrepreneur – “someone who searches for new ideas and exploits them
commercially.”
There are 2 types of innovation
- Innovation of products and services
- Innovation of production processes
There are stages to innovation:
Invention > concept > prototype > demonstration > market introduction
Mission oriented innovation – innovation based on one idea, or one problem that needs to
be solved.
Video 2: economic schools
There will be 2 schools of economy discussed
1 Neo-classic economists
- Look at the world in a fully rational way
o Firms maximize their profits
o Consumers maximize the level of satisfaction (if you have too much of
something, the satisfaction will go down)
- Supply and demand are balanced on a perfect competitive market
- Markets are fully transparent; everyone has access to all information.
,The production function - The amount of product that can be produced with a certain
amount of labor or money.
General equilibrium models:
- Calculates how production factors (goods, for example) are used most efficiently
- Maximize economic output
- Distribute it optimally over producers, costumers, sectors and countries
However, this system needs flexible markets and no trade barriers, otherwise you can’t
distribute everything even.
2 Evolutionary economics
- focus on the social behavior in society.
- Creative destruction and dynamic competition
Economics never agree with each other
Video 8: economies of scale
- Fixed costs – costs that do not vary with the amount of output (e.g. salaries of
employees)
- Variable costs – do vary with the level of output
- Average costs – variable costs
- Marginal costs – the amount of money its costs to create one unit of the product.
Economies of scale reduce the costs. There are several reasons for that:
1. fixed costs are spread over more units of production
2. the variable costs go down because the companies gain bargaining power
(staffelkorting)
3. specialization
4. the access to finance becomes cheaper
5. technology learning = with every unit of production, the costs per unit goes down.
learning curves show that with each unit of production, the production costs go down. There
are several uses for learning curves:
- evidence-based cost projection for the future
- they help governments in designing policies (e.g. subsidies)
- they are a central element in climate scenario models
Practitioners Albert Fisher >venture capital.
venture capital: high risk – high gain investing. The company decides which company is
most likely to create money. He looks for 4 criteria in the companies: what is the market the
company is working in like? What is the product the company is offering? Is it patentable,
unique, etc. third: what is the philosophy of the company? What is the work ethic like? And
lastly: is it going to bring up money.
Startup portfolio – all the companies the company invests in. there are not many
companies that eventually return the investments.
, Practitioners: Tim Wesselink (the entrepreneur)
Pricing may be difficult: he designed a high-end and low-end product on the market. Basing
on the sales of the high-end product was the price of the low-end product based. He also
tells that embracing failure is important when entrepreneuring. For the company patents
aren’t that important, because bigger companies have more power than his start- up. Closed
software and the knowledge that has to be gained in order to use the product, are the more
important than patents.
Module 2: intellectual property rights:
Chapter 2: The Nature and Role of Intellectual Property
Innovation is needed to create economic growth. IPRs are needed to stimulate innovation.
When people can copy your innovation immediately, no one will invent something.
Why are intellectual property Rights awarded? To give people a reason to produce socially
needed innovations. Without the rights, people would not invent, since other producers could
imitate their innovations immediately.
Knowledge is a public good: it is nonrival (it cannot be used up. There is no end of the
supply) and it is nonexcludable (it cannot be defended by a certain group, it will spread out
eventually)
The graph above shows a drastic change in costs. It shows that the new costs (MC2) are
much lower than the old production costs (MC1).
Further explanation: in the beginning, the market is perfectly balanced and all the producers
sell their goods at the same price (P1). After the innovation, the production costs go down to
P2. After the patent expires everyone has access to the innovation, which results in the
production costs going down even further to P3.
Consumer surplus - the difference between what customers are paying, and what they are
willing to pay for a product.
There are European countries where some innovations are excluded from the patent rights.
In the UK for example, is it illegal to patent medicine.
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