The Origin of Technical Change; Knowledge Generation, Opportunities and Entrepreneurship*

Mark SandersMax Planck Institute for Research on Economic Systems

Entrepreneurship, Economic Growth and Public Policy

Kahlaische Strasse 10

D-07745, Jena, Germany

sanders@mpiew-jena.mpg.de

 

Workshop The Nature of Opportunity, March 2005

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 1 of 15

Motivation

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 2 of 15

Growth Theory as it is

Opportunity and the Source of Growth

The Structure of Scientific (R)evolution

Growth Theory as it will be

Growth Theory as it is

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 3 of 15

Rents in Product Markets

Effort in R&D

New Products Old Ideas

Knowledge Filter

Introducing Opportunity

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 4 of 15

Rents in Product Markets

Entrepreneurs

New Products Knowledge ? ?

The Source of Growth

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 5 of 15

Pieces of Knowledge+ E. Vision and Talent=Commercial Opportunity

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 6 of 15

Science generates the Pieces of Knowledge

What drives Scientists to do so?

Paradigms

Normal Science vs. Scientific Crisis

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 7 of 15

A Model of Scientific Activity

)(Rnfn )()( Rfnnn P

where function f(.) is the knowledge filter and nP-n is the universe of opportunities. New products is then proportionalto the number of unexploited opportunities and depends onthe level of entrepreneurial R&D. This activity is profit driven.

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 8 of 15

A Model of Scientific Activity

,...)( tP Kgn 0)(' tKg

where function g(.) captures the role of entrepreneurial vision and talent. Opportunities are recognized and combine a number of scientific ideas. It is therefore positive in the stock of scientific ideas.

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 9 of 15

Normal Scientific Activity

f(0)=0, f’(.)>0, f”(.)<0, 0<α<1 and β>1

)/()Pr(

)()(

)()(

0

0

tttI

itβI

tit

itαI

tit

KAψP

SfKKA

SfKKK

t

tττθ

ittN τdPeKV )(

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 10 of 15

Crisis Scientific Activity

)()Pr(

)()(

0

0

ttA

tβI

tt

t

AφP

SfKKA

K

-

ttA AξKζK +≡0

βt

βt

ζSζS

ξ)1(1

)1(-

-

Alternative Paradigms

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 11 of 15

Paradigm Switching

tt

t

tt

A

AKK

AKK

+>

+0

θ(t)=ψ(At/Kt)*φ(At)*Pr(KA0>Kt)

Time

Kt

At

Problems

KII0

KIII0

KI0

II IIII

Scientific (R)evolution

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 12 of 15

-6

-4

-2

0

2

4

6

8

10

192

2

192

6

193

0

193

4

193

8

194

2

194

6

195

0

195

4

195

8

196

2

196

6

197

0

197

4

197

8

198

2

198

6

199

0

199

4

199

8

200

2*

GDP-growth NL Poly. (GDP-growth NL)

Growth Theory as it will be

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 13 of 15

Growth Theory as it will be

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 14 of 15

-0,02

-0,02

-0,01

-0,01

0,00

0,01

0,01

0,02

0,02

0,03

0,03

0,00 2000,00 4000,00 6000,00 8000,00 10000,00 12000,00 14000,00 16000,00

1960 GDP/CAP

aver

age

GD

P/C

AP

gro

wth

rate

196

0-20

00

Growth Theory as it will be

Mark Sanders, Max Planck Institute for Research on Economic SystemsSeminar at Max Planck Institute Tuesday, March 21st , 2005 slide 15 of 15

Ties institutions to Endogenous GrowthExplains long cycles (Kondratieff)Clearly identifies role of EntrepreneursExplains why Europe and why in 18th CenturyExplains transition from stagnation to growthExplains cyclical skill-biasesExplains cyclical productivity slowdownsSuggests very different policies

In Short: A Steady State Sucks,

Cyclical Growth Theory Rocks!!