Impact

1
Impact Additionality of Innovation Policy

• Luke Georghiou
• http//les.man.ac.uk/PREST

2
Outline

• Additionality and Rationales for Innovation
  Policy
• Behaviour of innovative firms
• Conclusions

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What difference?

• Aim of additionality to get beyond success
  stories and address actual effect of public
  policy action
• Basis is comparison with null hypothesis or
  counterfactual
• In 1995 identified three manifestations

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Input additionality

• Focus on input resource
• Does the firm spend at least an additional Euro
  for every Euro in subsidy?
• 2 scenarios
• Diversion to profits (fiscal support risk)
• Substitution of marginal project (grant support
  risk)

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Problems in calculating returns to RD
INNOVATION
RESEARCH
EFFECTS
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Output additionality

• Focus on proportion of outputs not achieved
  without public support.
• Impediments
• Outputs are essentially intermediates
• Innovation outcomes are hard to attribute to
  intervention
• Sensitivity to time profile

7
Behavioural additionality

• Observed that innovation policy effect often not
  stop-go but modification
• UK DTI sub-categories
• Scale additionality
• Scope additionality
• Acceleration additionality
• Applicable during project

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Behavioural Additionality and Policy Persistence

• Concept also applies to persistent or permanent
  changes in firm behaviour as result of policy
  intervention
• Strategic level move to new area of activity or
  business process
• Acquired competence level

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Evidence on additionality

• Bach Matt cognitive capacity
• Davenport and Grimes behavioural perspective
  shows importance of acquired managerial
  competence
• Luukkonen critique of identification of high
  additionality with success
• Hervik Evidence of trade-off between
  additionality economic impact pushing firms
  beyond competence or into higher risk profile

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Additionality Rationales

• Market failure providing general rationale but
  little specific policy guidance
• Lipsey Carlaw identify narrow and ideal tests
  of additionality as derived from neo-classical
  approach seeking optimality
• Information requirements of strong test create
  undue transaction costs
• Weak test (something policymakers are trying to
  do has happened as a result of expenditure)
  associated with structuralist-incrementalist
  perspective
• Without optimality criterion can consider less
  clearly specified effects (firms are variable)
  and structural capacity changes

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Firm or system level?
12
Project fallacy
Real deliverables
Contract
Real project
Contract deliverables
13
Quantitative Trends in Industrial RD

• 35 real growth 1993-98
• Why?
• Wider range of technological opportunities?
• Increased RD productivity?
• Increased competitive pressure to innovate?
• Greater ability to afford RD?
• Increased returns from stronger IPR?
• But declining proportion of government support
  for BERD

14
Qualitative trends

• Qualitative changes in industrial ecology
• Increased acquisition of technology rich smaller
  companies
• Growth in outsourcing
• Globalisation
• Alliances
• All stress relationships fit with central
  thrust of innovation policy
• Policy rationale is not to redress temporary
  failure to invest but rather to introduce new
  capabilities leading to self-sustaining cycle of
  investment in innovation behavioural
  additionality

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Additionality for SMEs and traditional firms

• Innovation policy focus on provision of advice,
  information and infrastructure
• Government shift from provider to broker
• Additionality harder to pursue by direct
  investigation as impacts are lighter and softer

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Testing for additionality through the
counterfactual

• Matched sample
• Issue of how similar firms are and attribution of
  firm performance to intervention
• Failed applicants
• Different characteristics of failures can be
  managed
• Application process itself can have effects
• Direct question
• Presumes honest reply and self-knowledge in firm

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Conclusions (application of additionality)

• Pursue input and output/outcome additionality as
  an ex ante policy design criterion
• Accept that ex post a full test of these is not
  cost effective
• Build pragmatic strategy around behavioural
  additionality
• Switch focus from immediate events surrounding
  project to understanding capacity of innovation
  system
• From flow to stock

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Conclusions (rationale for innovation policy
sustainability)

• Possible use of this rationale to influence
  innovation for sustainability
• Project based approach would be subsidy for clean
  technology development
• Regulatory approach setting compliance standards
• Empirical evidence of frequent innovation failure
  from misjudgement of environmental standards
• Systems perspective begins by questioning what
  capabilities and incentives needed for engagement
  in sustainable innovation

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Conclusions (Partnership)

• Includes
• Need for better information interaction with
  regulation
• Better understanding of social context for
  innovation
• Command of technology (transformation)
• Policy need for coordination through
  public-private partnership
• Flexible pragmatic rationales aiming to achieve
  persistent shift in capabilities hence behaviour