A theory of the US innovation ecosystem: evolution and the social value of diversity

Abstract

This article reviews evidence on the changing structure of the US innovation ecosystem and then develops a simple model of the rise and fall of the large corporate lab. We suggest that the growth of American universities allowed at first the formation of large corporate labs by training scientists to work in industrial labs. Subsequently, however, start-up invention spurred by university research provided an increasingly attractive alternative to internal research, leading to the demise of the large corporate lab. We use this model to assess whether the substitution of corporate research with start-up invention can result in insufficient variety in the innovation ecosystem. We find that, when levels of university research and start-up activity are high, large firms can have socially excessive incentives to focus on “open innovation.” Thus, despite its potential efficiency benefits, a division of innovative labor may reduce diversity in the innovation ecosystem by encouraging “me too” innovations.