Innovation, Diversity and Diffusion: A Self-Organisation Model ⑧ Gerald Silverberg; Giovanni Dosi; Luigi Orsenigo The Economic Journal, Vol. 98, No. 393 (Dec., 1988), 1032-1054. Stable URL: http: //links.jstor.org/sici?sici=0013-0133%28198812%2998%3A393%3C1032%3AIDADAS%3E2.0.CO%3B2-C The Economic Journal is currently published by Royal Economic Society. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/about/terms. html. jstor's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of journal or multiple copies of articles,and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http: //www.jstor. org/journals/res. html. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. scholarly journals. For more information regarding JSTOR, please contact support @jstor.org. http://www.jstor.org/ Wed Nov210:53:232005
The Economic Journal, g8( December 1988),1032-1054 Printed in Great britain INNOVATION, DIVERSITY AND DIFFUSION: A SELF-ORGANISATION MODEL Gerald Silverberg, Giovanni Dosi and Luigi orsenigo The diffusion of new products and new processes of production within and between business enterprises is clearly one of the fundamental aspects of the process of growth and transformation of contemporary economies It is well known that the diffusion of new products and processes takes varying lengths of time: some economic agents adopt very early after the development of an innovation while others sometimes do it only after decades Moreover, during the diffusion process the competitive positions of the various gents(adopters and non-adopters)change. So do the economic incentives to adopt and the capabilities of the agents to make efficient use of the innovation Finally, the innovation being adopted also changes over time, due to more or less incremental improvements in its performance characteristics which result in part from its more widespread use. Contemporary analysis of diffusion has been essentially concerned with the following questions:(a)why is a new technology not instantaneously adopted by all potential users?(i.e. what are the 'retardation factorspreventing instantaneous diffusion? ),(b)how can the dynamic paths of diffusion be represented? and(c)what are the relevant variables driving the process? However, innovation diffusion has rarely been formally treated as part of a more general theory of economic dynamics in which diversity of technological capabilities, business strategies, and expectations contribute to shape the evolutionary patterns of industries and countries(a remarkable exception is the evolutionary approach developed in particular by Nelson and winter (I982) who, however, are more concerned with the general features of industrial dynamics than with the specific characteristics and implications of the diffusion In this work, we shall analyse the nature of diffusion processes in evolutionary environments characterised by technological and behavioural diversity amongst the economic agents, basic uncertainty about the future, learning and disequilibrium dynamics shall identify some fundamental characteristics of technology innovation and diffusion which, we suggest, must be accounted for in theoretical models. Second, against this background, we shall briefly review s We gratefully acknowledge co ts on an earlier paper on which this work is participants at the International Conference on Innovation Diffusion, Venice, I7-21 March 1986, and onymous referees and Associate Editor, The work of one of us(Silver as partially supported by a grant from the Deutsche Forsch haft while the research of one of us(Dosi) has been part of the activities of the Designated Research Centre, sponsored by th R C. at the Science Policy Research Unit(SPRU), University of Sussex [1o32
DEC I INNOVATION AND DIFFUSION I033 what we consider the major achievements and shortcomings of the current models of innovation diffusion. Third, we shall present what we call a 'self organisation' model of innovation diffusion, that is, a model whereby relativel ordered paths of change emerge as the(partly)unintentional outcome of the dynamic interactions between individual agents and the changing charac- teristics of the technology. Fourth, the main properties and simulation results of the model will be discussed . CHARACTERISTICS OF TECHNOLOGY AND DYNAMIC INDUSTRIAL ENVIRONMENTS A renewed interest in the economics of innovation over the last two decades has brought considerable progress in the empirical description and theoretical conceptualisation of the sources, characteristics, directions and effects of technical change. We review these topics in Dosi(1988). Here, it suffices to summarise some of the major findings directly relevant to the diffusion of nnovations concerning the nature of technology and the characteristics of firms and innovative environments a) Technology-far from being a free good-is characterised by degrees of appropriability, of uncertainty about the technical and, a fortiori commercial outcomes of innovative efforts, of opportunity for achieving technical advance, of cumulativeness in the patterns of innovation and exploitation of technological know-how and hardware, and of tacitness of the knowledge and expertise on which innovative activities are based. Particular search and learning processes draw on technology-specific knowledge bases, related to both freely available information(e.g. scientific results)and more ' and tacit skills, experience and problem-solving heuristics embodied in people and organisations b)Technologies develop along relatively ordered paths(or 'trajec ctories”) shaped by specific technical properties, search rules, 'technical imperatives and cumulative expertise embodied in each"technological paradigm'(cf.Dosi ( 1984); for similar arguments see Nelson and Winter(1977), Sahal(198 1985), Arthur (1985), Metcalfe (1985)and within somewhat different perspectives, Atkinson and Stiglitz (196g )and David(1975)). Relatedly, Winter(I984)defines different 'technological regimes,accor to whether the knowledge base underpinning innovative search is prim Universal, and thus external to individual firms, or, alternatively, is primarily"localand firm-specific (c) As a consequence of(a) and(b), diversity between firms is a fundamental and permanent characteristic of industrial environments undergoing technical change(see also Metcalfe( 1985)on this point). Inter-firm diversity(even within an industry) can fall into three major categories First, there are technological gaps related to different technological capabilities to innovate, different degrees of success in adopting and efficiently using product and process innovations developed elsewhere, and different costs
I034 THE ECONOMIC JOURNAL DECEMBER of production of output. In Dosi (1984)we define these forms of diversit -y technological asymmetries, meaning unequivocal gaps between firms which can ranked as better'and worse'in terms of costs of production and produc characteristics Second, diversity relates to differences between firms in the procedures, input combinations and products, even with roughly similar production costs(on this point, see Nelson(1985). Similarly, firms often search for their product innovations in different product-spaces and concentrate their effort on different sections of the market Let us call this second set of sources diversity technological variety, meaning all those technological differences hich do not correspond to unequivocal hierarchies ('better'and worse technologies and products Third, one generally observes within an industry (and even more so betwe industries) significant differences in the strategies of individual firms with respect to the level and composition of investment, scrapping, pricing, R d etc. Let us call these differences behavioural diversity Evolutionary processes in economic environments involving innovation and diffusion are governed to different degrees by selection mechanisms and learning mechanisms. Selection mechanisms tend to increase the economic dominance (e.g. profitability, market shares) of some firms with particular innovation characteristics at the expense of others. Learning mechanisms, on the other hand, may both spread innovative/imitative capabilities throughout the (possibly changing) set of potential adopters and reinforce existing disparities via cumulative mechanisms internal to the firm e Learning processes generally occur via (a) the deveopment of intra-and inter-industry externalities'(which include the diffusion of information and expertise, interfirm mobility of manpower, and growth of specialised services) (6)informal processes of technological accumulation within firms(of which learning-by-doing and learning-by-using are the best known examples of such internalised externalities); and (c) processes of economically expensive search 很R&D After a brief survey of the current state-of-the-art in the theory of innovation diffusion, we shall present a model which, in our view, makes a serious attempt to incorporate some of these features of innovative environments in a novel, yet consistent and realistic way II. DIFFUSION MODELS: RESULTS AND LIMITATIONS Three basic approaches dominate current economic thought on innovation diffusion (cf. Stoneman (I983; I986), Arcangeli(I986)). First, the line of enquiry pioneered by the seminal work of Mansfield(I961; 1968),and Griliches(1957) tries to identify the empirical regularities in diffusion paths, typically represented by S-shaped curves. In Mansfield's'epidemic'approach diffusion is generally found to be pushed by the expected profitability of the innovation and driven by the progressive dissemination of information about
INNOVATION AND DIFFUSION its technical and economic characteristics. Thus, diffusion is interpreted as a process of adjustment to some long-term equilibrium contingent upon learning Empirical work on diffusion, however, whilst confirming the role of profitability in adoption decisions, has shown that differences in the characteristics of innovations, of product mixes, and of the potential adopters are also key factors in the diffusion process(see, for example, Nabseth and ray (1974), Gold( 1981), Davies(I979), David(I975) These findings, together with theoretical considerations about the crudely mechanical nature of epidemic diffusion models, lend support to a second approach, namely one based on'equilibrium diffusion models'. Here, diffusion is seen as a sequence of equilibria determined by changes in the attributes of the innovation and the environment(see David(1969), Davies (1979), Stoneman and Ireland Ireland and Stoneman(1986), David and Olsen (Ig84), Reinganum )). This approach has undoubtedly provided important insights into diffusion processes. Amongst other things, it has shown the importance of (i)differences(such as size) between potential adopters;(i)the interactions between the supply decisions of the firm producing innovations and the pace of their adoption; (ii)the technological expectations of suppliers and adopters; (iv) the patterns of strategic interactions amongst both suppliers and adopters; (v) the market structure in both the supplying and using industries. However, these results are generally achieved at a high theoretical price. Radical uncertainty is de facto eliminated and maximising behaviour is assumed. 2 The analysis is often undertaken in terms of the existence and the properties of equilibria, while nothing is generally said about adjustment processes. Information about the techno-economic charac teristics of the technologies is generally assumed to be freely available to all agents. The nature of 'technology'is radically simplified and assumed to be embodied in given technical features of production inputs o A third approach is explicitly evolutionary and represents the diffusion of new hniques and new products under conditions of uncertainty, bounded rationality and endogeneity of market structures as a disequilibrium process (Nelson, 1968; Nelson and Winter, I982; Metcalfe, I985; Silverberg, I984 The model that follows is in this evolutionary tradition, and thus allows for isequilibrium processes, endogeneity of market structures, etc. It also explicitly incorporates those assumptions ofequilibrium'diffusion models which capture important empirical characteristics of innovative environments mentioned earlier, such as the relevance of expectations and differences between agents, as the transition between 2 To be precise, in Davies'original model adoption are based on rules of thumb explicitly d in terms of 'bounded rationality. Ye See also Eliasson(1982; 1986). On the connection to empirical ana Gort and Klepper(1982). Gort and Konakayma(1982)and Levin et al. (1985)