Using a newly assembled dataset of U.S. patents, we show that overall innovation activity is less concentrated in high-density urban areas than commonly believed, but inventions based on atypical combinations of knowledge are indeed more prevalent in high-density cities. To interpret this relation, we propose that informal interactions in densely populated areas help knowledge flows between distant fields, but are less relevant for flows between close fields. We build a model of innovation in a spatial economy that endogenously generates the pattern observed in the data: specialized clusters emerge in low-density areas, whereas high-density cities diversify and produce unconventional ideas.
Discussion by Richard Florida on CityLab: The Geography of Innovation
We analyze the effect of the rise of knowledge-based activities on spatial inequality within U.S. cities, exploiting the network of patent citations to instrument for local trends in innovation. We find that innovation intensity is responsible for 14% of the overall increase in urban segregation between 1990 and 2010. This effect is mainly driven by the clustering of employment and residence of workers in knowledge-based occupations. We develop and estimate a spatial equilibrium model to quantify the contribution of productivity and residential externalities in explaining the observed patterns. Endogenous amenities account for about half of the overall effect. We illustrate the relevance of the model for policy analysis by studying the impact of four bids for Amazon’s HQ2 on the structure of New York City.
Martin Prosperity Institute Working Paper version - In preparation for the special issue of Managerial and Decision Economics on The Strategic Management of University-Private Research Partnerships and Innovation
The university is a key source of talent and a key driver of innovation and economic growth in a knowledge‐based economy. But, in performing these economic functions, it also contributes to economic and spatial inequality. Our research uses a variety of new data to examine this Janus face of the university in innovation and inequality across U.S. metro areas. We find evidence that the university plays a role in both regional innovation, boosting local patenting and startup companies, and in economic inequality, with higher rates of income and occupational segregation in metros with highly rated universities.
We combine data on scientific publications from the Web of Science, patent records from the USPTO and balance sheet information on publicly traded companies to measure firm-level response to the greatest scientific discoveries of our time. The publication of a groundbreaking paper is followed by a significant resource reallocation and output increase for responding firms. Measures of profitability are not affected on average, but this fact conceals large heterogeneity across different episodes. To explain these findings, we develop an endogenous growth model in which the returns to R&D investment are subject to information frictions. The model delivers a simple restriction that can be imposed on the data to separate breakthroughs from dead-end scientific discoveries. We test the model’s implications against our data: the empirical results support the idea that initial uncertainty systematically permeates the early stages of a new technology. Nevertheless, we provide suggestive evidence that discoveries that are unprofitable for responding firms can produce positive aggregate effects through dynamic technological spillovers.
Since the 1980s, the United States has experienced a sharp rise in the college wage premium. In contrast, in a number of European economies such as Germany and Italy the return to education stayed roughly the same. In this paper, we argue that differences in employment protection can account for a substantial part of these diverging trends. In our model, firms and workers can invest in relationship-specific capital: firms can create jobs that are complementary to experienced workers with long tenure, and workers can make corresponding investments in firm-specific skills. The incentives to undertake such investments are stronger when employment protection creates an common expectation of long-lasting firm-worker matches. Firms and workers also invest in relationship-specific capital in a calm economic environment where match-specific shocks are small. The diverging inequality patterns between the United States and Europe emerge from different levels of employment protection combined with an increase in “turbulence" (Ljungqvist and Sargent 1998) in the economy starting in the 1980s.