Tips from my research
1. Markets for technology
Markets for technology (MFT) involves the trade of technology disembodied from physical goods. With Ashish Arora and Andrea Fosfuri (e.g., MIT Press, 2001; ICC 2001; ICC 2010), I have documented that MFT have become more important since the 1990s because some limitations to their growth have become less severe. One of our main points is that MFT encourage division of labor according to comparative advantages (the division of innovative labor): firms specialized in generating innovations can sell their technologies to firms with comparative advantages in innovation development and commercialization. Our MIT 2001 book and our JDE 2001 paper document this phenomenon. See also my paper with Paola Giuri and Alessandra Luzzi (Res Pol, 2007).
In a book chapter (MIT Press, 1998), Tim Bresnahan and I distinguish between downstream markets with many firms (high N) and downstream markets with large firms (high S). We show that high S encourages internal production of dedicated technologies, while high N encourages production of general-purpose technologies (GPT) by specialized upstream producers. In the former case, the internal demand of the firm is large enough to justify investments in dedicated technologies; in the latter case, specialized technology suppliers generate GPT to fit the needs of heterogeneous producers. With Anita McGahan, I have discussed business models of firms that exploit GPT opportunities by serving many downstream producers (LRP, 2010).
In Res Pol (2013), Marco Giarratana and I argue, and show empirically in software security, that MFT thrive when there are GPT and fragmented downstream product markets. When product markets are homogenous, downstream competition discourages the sale of technology. If the potential technology supplier is also a downstream producer, it does not want to create a close competitor. If it is not a producer, the licensee will ask for exclusivity for the same reason. In contrast, when product markets are fragmented, the licensees operate in differentiated niches that shelters them from competition. However, they only buy GPT because dedicated technologies in one niche are not useful in others.
2. Private value of patented inventions
With Dietmar Harhoff and Bart Verspagen, I document the distribution of the value of European patents (EMR, 2008). We now also have a paper that finds that the private value of patent portfolios increases mainly because of the number of patents in the portfolio rather than its average value (JEMS forthcoming.)
3. Managerial firms, knowledge clusters and inequality
In Org Sci (2010) Marco Giarratana and I distinguish between the presence of knowledge clusters and managerial firms in cities. Knowledge clusters select projects ex-post. If two entrepreneurs launch two similar projects, the market will select the better project. Managerial firms select projects ex-ante. If two managers of a firm propose two similar projects, the firm either lumps them into a larger project or differentiate them to reduce competition. As a result, the performance of the two entrepreneurs exhibit higher variance. Knowledge clusters also generate spillovers, which raises expected performance. We show empirically that, in 146 US cities, the presence of knowledge clusters raises both the expected value and the variance of managerial salaries.
In SEJ (2010), we develop this argument further. Because knowledge spillovers reduce the cost of acquiring information, entrepreneurs in geographic clusters specialize in knowledge-intensive activities. This reduces the complementarity between skilled and unskilled labor. Data on our 146 US cities then show that a greater presence of managerial firms vs. knowledge clusters generate less inequality across skills, after controlling for the local composition of industry.
4. Innovation performance
Small vs. large firms
With Ashish Arora, Fabio Pammolli and Laura Magazzini, I studied the relative performance in generating innovation by large and small firms. We argue that the observed innovation output of large firms can be lower than small firms for strategic reasons, even if large firms are technically more efficient innovators. An innovation produced by a large firm may cannibalize some of its current products, or it competes with other innovation that the firm has produced. Thus, the firm may only develop a subset of the innovations that it generates. This problem is less severe in smaller firms. If we judge the large firms' ability to generate innovations from the innovations that they develop, we may underestimate its capability of generating ideas. Using data on biotech and large drug firms, we show that if we control for this strategic selection, large firms are more efficient at generating innovations than biotech firms.
Parallel vs. large scale innovation projects
With Raffaele Conti and Myriam Mariani (Org Sci, 2014), I show that a more experienced researcher produces more inventions per unit of time. However, experience produces myopia, which implies that the individual invention of the less experienced inventor is more likely to be a breakthrough. But who is more likely to produce a breakthrough in an interval of time? We show that the order statistics effect dominates: because the experienced inventor produces more inventions, she is more likely to produce at least one breakthrough even if each invention that she produces is less likely to be a breakthrough. We conclude that young inventors with fresh new ideas are more likely to produce breakthroughs when firms solicit specific projects. Experienced inventors are instead superior when firms hire them to generate several ideas during their employment spell.
I am working on other projects that explore the conditions under which the order statistics effects associated with a higher number of independent trials raises innovation productivity. For example, this framework can help to understand when many independent entrepreneurial companies produce more innovations than fewer larger scale projects of larger firms.
5. Autonomy as incentive to motivate human capital
Claudio Panico is teaching me that firms can use the delegation of decision rights (autonomy) as a means to provide knowledge workers with incentives when firms cannot observe the workers' effort and output. With Giovanni Valentini, we have developed a theoretical paper (SMJ 2015) in which we show that firms provide knowledge worker with more autonomy if the firm's assets do not offer good incentives. In 1926, Du Pont had no experience in basic research, and hired Wallace Carothers, who later discovered nylon. To attract him, Du Pont offered Carothers extensive autonomy. Carothers was motivated by the possibility of performing the research that he was most interested in. In contrast, Thomas Edison lured many bright minds to work in his Invention Factory even if he was controlling every detail of their activities. Working for Edison in a stimulating environment was already a great opportunity to carry out exciting projects that motivated these people. Our managerial implication is that firms can use the fit with their assets as an instrument to motivate human capital and direct it toward firms' goals. When there is no such a fit, the firm has to concede autonomy. Scott Stern has shown that scientists pay to be scientists (Man Sci, 2004). We show that firms can pay scientists by allowing them to use the firms' assets as a compensation.
6. Markets and welfare in user innovation
Christina Raash and Eric Von Hippel have taught me the subtleties of user innovation. In a forthcoming paper in Management Science we discuss the implications of the growing share of user innovators in our economies. Our theoretical model shows that the growth of user innovators encourages firms to switch from a close to an open innovation mode in which they share knowledge with users. However, firms sometime stick to a close mode even if welfare is higher under the open mode -- that is, societies may under-invest in user innovation, especially today in light of the growing share of such users. An intriguing result of the model is that policies supporting R&D may be welfare reducing if firms use the R&D support to improve their innovation productivity in the close mode while welfare is higher in an open mode.
7. Corruption in emerging economies
Thanks to Addis Birhanu, who obtained her PhD from Bocconi and joined the University of Lyon, I am starting to understand some important implications of corruption at the firm level. In a joint paper with Giovanni Valentini (SMJ, 2016), we use World Bank data to show that in Africa and Latin America firms that bribe invest less in fixed assets, other things being equal. We explore some potential mechanisms: 1) firms that bribe do not have enough resources to invest and vice versa; 2) firms that pay bribes invest less because fixed assets make them less flexible to switch activities or locations and therefore more vulnerable to future bribes; 3) inefficient firms enjoy fewer returns from investment, and bribe to obtain results; 4) short-term oriented firms bribe, long-term oriented firms invest. We find evidence inconsistent with the first three mechanisms, and consistent with the fourth one. This suggests that bribing may really undermine the fundamentals of long-term growth of firms and countries. It is like searching for a job via investing in education or nepotism. Nepotism may help you in the short-run, but education will get you well beyond in the long-run.
I have benefitted significantly from interactions with several PhD students
Senem Aydin, Bocconi, graduated 2016, Postdoc, Northeastern University, Boston
Pooyan Khashabi, Bocconi, graduated 2015, Junior Professor, Ludwig-Maximilians-Universitat Munchen
Addis Gedefaw Birhanu, Bocconi, graduated 2014, Assistant Professor, University of Lyon
Allya Koesoema, Bocconi, graduated 2012, Lecturer, University of New South Wales, Australian School of Business, Sidney
Gili Greenberg, Bocconi, graduated 2011, Israeli Antitrust Authority, Tel Aviv
Raffaele Conti, Bocconi, graduated 2011, Assistant Professor, Catolica-Lisbon
Elena Novelli, Bocconi, graduated 2010, Lecturer, Cass Business School
Marco Corsino, Sant'Anna, graduated 2007, Lecturer, University of Rimini
Maria Carmela Passarelli, Sant'Anna, graduated 2007, Basilicata Innovazione
Francesco Rullani, Sant'Anna, graduated 2007, Assistant Professor, Luiss, Rome
Grid Thoma, Sant'Anna, graduated 2007, Lecturer, University of Camerino
Alessandra Luzzi, graduated 2005, Assistant Professor, Norwegian Business School
Marco Giarratana, Sant'Anna, graduated 2003, Professor, Bocconi
Fabrizio Cesaroni, Sant'Anna, graduated 2002, Associate Professor, University of Messina