Exploring the innovative effort: duration models and heterogeneity

Abstract

Perseverance in R&D effort is the first fundamental step towards any kind of innovation. We investigate the beginning of the innovation story, rather than its end, through duration models. Among the drivers of our unconventional IO approach, we focus on heterogeneity, path dependence and market power, measured as elasticity of firm-specific demand. The Schumpeterian hypothesis emerges at the firm level. Heterogeneity at the industry level reveals Schumpeterian and Arrovian patterns, as well as U-shaped and inverted U-shaped patterns. We suggest considering the entire supply chain from a holistic perspective when evaluating mergers and innovation policies that support small firms by reducing their financial uncertainty and improving their institutional environment.