K+S model with public and private R&D collaborations


Name of the model: K+S model with public and private R&D collaborations

Reference paper: Spinola, D., T. Treibich, F. Lamperti, P. Mohnen and A. Roventini (2021) `` Are public and private innovation efforts complementary? Competition, technology and patent policies in a macroeconomic agent-based model’’, Growinpro deliverable 5.2.



In this paper we investigate the complementarity between private and public actors in the innovation system, and how such ecosystem is affected by competition and patent policies. We build on an agent-based model with R&D collaboration among private firms (Spinola et al., 2021) from the Keynes meets Schumpeter (K+S) family of models (Dosi et al., 2010) and combine it with policies from an ``Entrepreneurial State": public research-oriented firms diffusing technologies and a National Research Lab which fosters radical innovations through basic research, enlarging the technological opportunities available to private firms (Dosi et al., 2021).



Firms in the capital-good sector can decide to collaborate in their R&D efforts and then look for a partner whose technology is sufficiently close to theirs. This increases their chances to innovate and adopt a new vintage of machines, but due to spillovers across partners, they can also more easily imitate and be imitated by the collaborating firm. We modify our baseline setup by applying two sets of policy experiments and combining them together. On the one hand we vary the competition environment via antitrust and market size changes; one the other hand we modify the innovation and imitation ecosystem via an ``Entrepreneurial State" and patent policies.

The Entrepreneurial state has two components: a public firm and a national research lab (NRL). The public firm acts in the capital-good sector, in a similar way as the private firm. The public firm differs from private ones because: (1) if it has negative liquid assets, the government bails it out (the firm can’t exit for financial reasons), (2) it invests more than capital good firms in R&D as a share of its past sales, and (3) it can be copied by any firm. The NRL does not interact in the competition process, but acts as the locus of radical innovations, changing the technological opportunities of the system, generating systemic gains.



We show that the impact of public involvement in the development of new knowledge and technology has a far greater impact on innovation and growth outcomes than private collaborations. Besides, policies restricting the size of the largest firms or limiting market size allow the smaller firms to innovate more, and benefit from public R&D. With a more diverse innovation system, the economy thrives. Patent policy in turn benefits the largest firms and harms such virtuous process.


Policy Implications / Questions

In a richer and more complex innovation system including public and private R&D collaborations, are the traditional mechanisms linking competition and innovation still present, and does one dominate? What are the aggregate effects of the interplay between competition and innovation, as well as the effectiveness of related policies?


Relevant parameters

Collaboration decisions on the ES K+S framework depend on a set of parameters, which are subject to a sensitivity analysis:

-          phi_i (sensitivity of collaboration breaks to past performance and random shock)

-          imm_td (sensitivity of imitation rate of collaborating firms to change in imitation intensity)

-          cRD (sensitivity of collaboration rate to change in weight of market share growth)

The Entrepreneurial State part is affected by a set of parameters, which are subject to a sensitivity analysis:

-          v_state (share of sales used to invest in R&D by the public firm)

-          eta_1 and eta_2(logistic parameters of the NRL sigmoid curve that defined the probability that a radical innovation occurs)

-          cRD_public (cumulative research efforts of the national research lab)

Relevant firm-level outcome variables

-          Innovation and imitation rates

-          Productivity

Relevant aggregate variables

-          GDP growth / GDP Volatility

-          Public deficit and public debt

-          Concentration rate (HHI)