Uncertainty and the Size Distribution of Rewards from Innovation

Scherer, F. M.; Harhoff, Dietmar; Kukies, Jörg

doi:10.1007/s001910050011

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Uncertainty and the Size Distribution of Rewards from Innovation

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Scherer, F. M., Harhoff, D., & Kukies, J. (2000). Uncertainty and the Size Distribution of Rewards from Innovation. Journal of Evolutionary Economics, 10(1-2), 175-200. doi:10.1007/s001910050011.

Cite as: https://hdl.handle.net/11858/00-001M-0000-0019-92C0-F

Abstract

Previous research has shown that the distribution of profit outcomes from technological innovations is highly skew. This paper builds upon those detailed findings to ask: what stochastic processes can plausibly be inferred to have generated the observed distributions? After reviewing the evidence, this paper reports on several stochastic model simulations, including a pure Gibrat random walk with monthly changes approximating those observed for high-technology startup company stocks and a more richly specified model blending internal and external market uncertainties. The most highly specified simulations suggest that the set of profit potentials tapped by innovators is itself skew-distributed and that the number of entrants into innovation races is more likely to be independent of market size than stochastically dependent upon it.