Entry,spending and firm size in a stochastic R&D race

A model is developed to explain participation and spending on R&D as a function of firm size. The R&D process is represented as an n-participant race with a Poisson incidence of success, where the winner takes all during some protection period. Four effects of scale are taken into account: a sunk fixed threshold cost of entry; a flow cost of expenditure for the duration of the race, which affects both the profitability of winning and the speed of development (the Poisson parameter), both with diminishing returns; allowance for an effect of firm size on the effectiveness (profit/cost) of development. The operational decision concerning the level and intensity of commitment in case of participation is modelled in a traditional fashion as the maximization of expected returns. The strategic decision whether or not to participate (at an optimal level and intensity) is modelled as a stochastic process of deliberation between different makers and influencers of decisions in the firm. The latter is to be seen as an introduction of the political and resource dependence views of organisations. The resulting model of R&D participation as a function of firm size is tested empirically on data from an R&D survey in the Netherlands.     

Information technology, transaction costs and the decision to 'make or buy'

Information and communication technology (ICT) has a wide ranging impact on business. One of the effects is on the 'make or buy decision'. This is analysed from the perspective of transactzon cost economm (TCE). On the one hand ICT reduces transaction costs by reducing search costs, by facilitating monitoring and control of performance and by yielding a greater flexibility of production, which reduces the transaction specificity of assets. These efiects, favour the decision to 'buy'. On the other hand, ICT reduces economies of scale, in some areas of production, which makes outside production i n a specializedfirm less attractive. Also, ICT may be used to impose switching costs between suppliers and buyers, thereby miszng transaction costs. But such ploys appear to be feasible only temporarily, with a pressure from users and competitors towards standardization and open systems. Thus the effects of ICT are diverse, but on the whole it tends to favour the option to contract out.     

Service value chains and effects of scale

This paper generalizes Porter’s notion of the value chain for the analysis of service industries. The generalization entails that the flow and the physical transformation and assembly of goods that are characteristic of manufacturing are generalized into flows and transformation of data and flows and transformation of the physical and mental condition of people that are characteristic of many service industries. Utility is generalized from the utilities of forms and function of goods, characteristic of manufacturing, to the utilities of time, place, convenience, speed, safety, entertainment, physical and mental well-being, knowledge and mental capacity, funding and assurance. The analysis yields a categorization of industries according to central features of the value adding process. Here, the analysis is used to identify sources of (in)efficiency of scale, scope and experience, along the value chain.

Estimation of Threshold Costs in Service Industries

In an article in the European Economic Review published in 1982, a theory was presented which explains labour costs as a function of plant size (shop size, in the case of retailing). The theory has been applied and corroborated in many subsequent empirical studies, and is in use for predictions, policy evaluations, the consultancy of firms, and further research. The present paper discusses the limitations of the original simplified theory, the estimation biases that may result, and a possible explanation of the apparent lack of actual bias in empirical practice. The purpose of the paper is to further a more sophisticated interpretation and use of the theory.     

Information technology,transaction costs and the decision to 'make or buy'

Information and communication technology (ICT) has a wide ranging impact on business. One of the effects is on the 'make or buy decision'. This is analysed from the perspective of transactzon cost economm (TCE). On the one hand ICT reduces transaction costs by reducing search costs, by facilitating monitoring and control of performance and by yielding a greater flexibility of production, which reduces the transaction specificity of assets. These efiects, favour the decision to 'buy'. On the other hand, ICT reduces economies of scale, in some areas of production, which makes outside production i n a specializedfirm less attractive. Also, ICT may be used to impose switching costs between suppliers and buyers, thereby miszng transaction costs. But such ploys appear to be feasible only temporarily, with a pressure from users and competitors towards standardization and open systems. Thus the effects of ICT are diverse, but on the whole it tends to favour the option to contract out.     

Innovation and diffusion in small firms: Theory and evidence

The article provides an inventory of the strengths and weaknesses of small firms in a dynamic context. To do this it considers verbal accounts of the processes of innovation and diffusion, as well as quantitative studies testing cause-effect relations. It consider both economic and noneconomic factors, concerning issues of motivation, perception and knowledge. First an overall summary is given of the characteristics of small business compared with large business, as a basis for an assessment of strengths and weaknesses. Perhaps the most important characteristic of small business is its diversity, and the article gives the conditions and sources of it. Other core characteristics are small scale, personality and independence of the small firm. From these, derived characteristics, strengths and weaknesses and core strategies can be inferred. From the perspective of the firm, strengths and weaknesses are subsequently analysed for the successive stages of innovation: invention, development, tooling/production, introduction to practice/market. Strengths and weaknesses in diffusion are analysed for the successive stages in the adoption process, as proposed by Rogers. Reference is made to theory and to empirical studies from the literature and from research by the present author.     

Governance and competence: how can they be combined?

Transaction cost economics faces serious problems concerningthe way it deals, or fails to deal, with bounded rationality,the efficiency of outcomes, trust, innovation, learning andthe nature of knowledge. The competence view yields an alternativeperspective on the purpose and boundaries of the firm. However,the competence view cannot ignore issues of governance and,in spite of serious criticism, transaction cost economics yieldssome useful concepts to deal with them. This paper aims to contributeto the development of theory and empirical research that connectsgovernance and competence perspectives.     

The Popperian Legacy in Economics: Confusion and beyond

Summary The book ThePopperian Legacy in Economics (editor Neil de Marchi, Cambridge University Press, 1988) is recommended as a well-composed overview of different approaches to economic methodology, the struggle of economists with the attractions and frustrations of Popper's methodology of falsification, and attempts to strike out in new directions. The overall result is confusion, but a confusion which is worth taking note of and which offers both a challenge and some hints for a search for progress. Part two of the article attempts to take up that challenge.     

The purpose and effectiveness of technology transfer to small businesses by government-sponsored innovation centres

The Dutch government instituted regional innovation centres (ICs) for the stimulationof technology transfer to small business. In the context of an evaluation of these ICs, technology transfer is analysed on the basis of the adoption process according to Rogers. Attention is given to problems of bounded rationality, in particular tacit knowledge that arise especially among small business. Rogers criteria for adpoption are extended and supplemented with criteria for product innovation. The purpose of ICs is reconstructed as the guidance of firms in the adoption process, on the basis of the criteria. The analysis develops into a market segmentation of firms as a basis for a marketing plan for ICs. The segmentation corresponds with the taxonomy of firms in the context of diffusion that was developed by Pavitt on the basis of an innovation data base. Effectiveness of ICs is defined as the setting of proper priorities with respect to market segmentation, and a guidance of firms in the adoption process which enters and leaves the adoption process neither too late nor too early with approaches adopted to the market segments.