Prof. Dr. Georg Westermann
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G.Westermann (1997), Bookreview, forthcoming in:Journal of Evolutionary Economics (1997) Antonelli, Cristiano: The Economics of Localized Technological Change and Industrial Dynamics, Dordrecht: Kluwer Academic Publishers, 1995, ISBN 0-7923-2910-4 Localized technological change seems to be a feature that enters more and more the core of economic analysis. First mentioned by Atkinson and Stiglitz, it has been commented often, developed further and critizized by a variety of researchers, and also has been applied to a number of research fields. Especially the scientists involved in Evolutionary or Schumpeterian Economics quite often refer to the idea because it explicitly allows for the heterogeneity of economic agents. So it seems to this reviewer that Antonelli's work, to analyse the pivotal features and the theoretical background of this approach, is highly interesting for economists of many different research fields. The book itself is mainly concerned with the analysis and - as a consequence - the modeling of localized technological change in an equilibrium framework. The most relevant variables for the optimization behaviour of firms are the costs/revenues of innovation with respect to the costs/revenues of factor substitution. Antonelli starts his treatise with a compact and thorough survey of the received literature of localized technological change. He presents definitions and explanations that reach from the reduction of the elasticity" substitution between primary, complementary or intermediary production factors up to technological interelatedness. He also mentions differences in size, innovative capacities and regional asymmetries. The next five chapters belong to that part of the book that is concerned with the modeling of the origin and diffusion of localized technological change. Chapter two concerns the introduction and definition of his pivotal variable; adjustment costs. These costs exist because "... firms are portrayed as agents affected by bounded rationality with strong limits in their capability to search and elaborate information about markets, techniques and technology. Changes ... are coped by firms only after some dedicated resources have been applied to search ..." (p.19). Adjustment costs are then divided into costs of switching and innovating. The first category is influenced by changes in factor intensity, size, bureaucratic organization of firms and missed learning opportunities. Innovation costs are defined mainly as R&D expenditures, combined with firm-specific endowment advantages. Antonelli argues in this chapter that firms possess two fundamental strategies to react to changes in factor prices or demand levels: They (a) may change the technique currently in use, which means switching over to a factor intensity suitable to the new market conditions. This can be illustrated by the "... substitution in the existing map of isoquants from a technique A to a technique B ..." (p.21). They can also (b) introduce technological innovations within the local range of factor intensity, that is "... the creation of a new map of isoquants ..." (p.21). These two fundamental strategies can be combined by firms and so, together with the respective cost values, one is able to derive an "adjustment cost function". Together with the "technology response functions" that deliver the firm-specific efficiency of the switching or innovating activities (and are introduced in detail in chapter three), it is now possible to describe the rationale for technical choices of firms. These can be characterized as the result of the comparision of "... the relative costs of switching with respect to innovating for a given relative revenue derived from switching with respect to innovating." (p.40). Antonelli concludes this part of the analysis with three main results: (a) technological change can substitute for technical change, i.e. innovating substitutes for switching; (b) rates and direction of technological change can be described as an endogenous outcome of the economic system; (c) the relative efficiency of innovative activities as a function of the path-dependent endowment factors with respect to the efficiency of switching activities determines on the degree of localization that technological change exhibits. Chapter four provides as a first application of the adjustment cost model a micro-foundation to the relationships between output growth or demand growth and the rate and direction of technological change. Again, Antonelli is able to derive varying firm behaviour from the "...complex mix of switching costs and endowment advantages ..." (p.52). The degree of efficiency of switching versus innovating and the appropriability conditions play an especially crucial role in this context. In the next two chapters (5 and 6), the notion of localized technological change and the so far developed model of adjustment costs is now applied to the question of how firms decide to adopt new technological innovations, and, hence, to the analysis of diffusion processes. Here Antonelli argues that the degree of localization of technological changes is pivotal to the explanation of technological diffusion. The main arguments and variables are again the "... technical and cognitive diversity among economic agents ..." (p.53) that form the building blocks of the theory of localized technological change. After a thorough description and critique of different diffusion approaches, Antonelli formulates his own model as a "Neo-Epidemic-Approach" that combines the advantages of its epidemic, equilibrium and Schumpeterian predecessors: The S-shaped diffusion process known from the epidemic approach is now constrained by the structural features of the equilibrium conception. The result is a model with outcomes that are consistent with the Schumpetarian oriented analysis: (a) total efficiency of all firms increases; (b) some firms are more efficient than others and selection processes take place; (c) path dependency can be shown to exist and to shape the diffusion process. While chapter 5 is more a general analysis of the diffusion process under the assumption of localized technological development, in chapter 6 the author concludes the book's first part with an application-oriented analysis. He tackles the problem of explaining labor productivity growth with the help of technology diffusion variables, especially the diffusion of the new information technologies. For this purpose he develops an empirical macro-model of labor productivity that includes "... the ratio of total investments on output ...; the rates of diffusion of new information and communication technologies ...; the catching up opportunity ...; the technology gap ..." (p.88). Part two of the book (containig five chapters) concentrates on several aspects of industrial organization that are described and analyzed, with emphasis on the assumption of the localization of technological change. Especially in chapter seven, Antonelli shows why he assumes localization to be a core feature in this field of research. He harkens back to the foundations built up in the preceding chapters. Here he stresses the resulting technological heterogeneity of firms, and states that in "... such conditions the introduction of new localized technologies ... are likely to affect in the depth the competitiveness of firms and the distribution of costs and profits among them. Hence, the innovative behaviour of firms and their performances are significantly affected by the features of the original industrial structure and the technology introduced ..." (p.91). Within this "Path-Dependent-Approach" Antonelli merges some distinct theoretical frameworks within the field of industrial economics, especially the so-called Structuralist- and the Schumpeterian/Evolutionary-Approaches. For that purpose he adds to the structuralist assumption of the a priori (size, age, organization, access to input markets etc.) diversity of firms some Schumpeterian/Evolutionary features such as information-costs, endogeneity or localization of technological change. In chapter eight the features of localized technological change are applied to an analysis of the dynamics of global markets. These markets are defined as very heterogenous on the factor side, in contrast to the substantial homogeneity of product markets. The heterogeneity of the factor markets consequently results in quite distinct access conditions for different firms. With the help of the C.E.S production function and the standard profit maximization assumptions, he derives the result that, in this context, localized technological change that leads to a decline in the elasticity of substitution is one main source of cost differentials between innovators and imitating firms. Consequently, it shapes the appropriability conditions for extraprofits. Among others, two crucial implications are then to be drawn from this analysis: (a) "Innovating firms have now a clear incentive to introduce localized ... technological innovations ..." (p.106), and (b) the rate and direction of technological changes are thus endogenous to the economic system. For the purpose of the next chapter, Antonelli uses the notion of generic and localized knowledge to assess analytically well-known organizational strategies like diversification and specialization. This results in the clear-cut distinction that the "... introduction of localized technological change parallels strategies of product and market specialization. The introduction of generic technological change parallels strategies of diversification ..." (p.117). Another pivotal element in the field of industrial organisation is the feature of networks. These are defined here as technically different production units with some complementarities in the creation and adoption of technologies. In chapter 10 Antonelli introduces his basic ideas about networks. The assumption is that the variety of firms leads via different sorts of externalities to (a) supply curves of networks that show negative slopes ("subadditiveness") and (b) "superadditiveness" in the profit function. The externalities are supposed to be stemming from technical complementarities and compatibilities well-known in the literature. This more or less static approach is then widened in the next section (chapter 11) to account for some dynamic aspects. Here, by analyzing "technological districts" and "technological clubs", the author comes to the conclusion that firms have to face a kind of trade-off between positive technological network-externalities (that mainly exist of collective learning opportunities) and negative network-externalities such as decreasing appropriability conditions and increasing input prices. This contribution is a quite interesting one for a reviewer who himself is concerned with research in the field of technological progress under Evolutionary/Schumpeterian assumptions, as its theoretical background is explicitly based on this same framework. Antonelli provides here a quite convincing and well elaborated analytical framework for the formal analyses of these features. There are several passages in the text where Antonelli characterizes economic agents as bounded rational "... with strong limits in their capability to search and elaborate information about markets, techniques and technology ..." (p.19) and facing information costs that depend on their respective technological "past". It is especially worth noticing that he applies a neoclassical oriented equilibrium approach to tackle all the features covered: Antonelli's firms optimize over information costs with respect to technical revenues of distinct strategies to cope with demand shocks or factor price variations in part one of the text. Also, some industrial organization problems are solved by optimizing the trade-off between positive and negative network-externalities. This seems, at first glance, to be a contradiction, because optimization (especially in the dynamic case) should be incompatible with bounded rationality. Here Antonelli uses the trick in allowing his agents to "... maximise only with respect to a limited time horizon ..." (p.19). Within these limits the firms can foresee the costs and the outcomes of their strategies. They are able, for example, to collect all relevant information about the costs and revenues of research projects and the adoption of existing techniques. At that point of Antonelli's approach the only main critical remark shall be fixed. One may ask if it is adequate to circumvent the non-optimizing condition of the Evolutionary context by assuming very small time horizons for the sequential (optimal) choices of the agents. Apart from the question of radical innovations, the frequency of firm choices devoted to incremental technological change is of such crucial importance for this approach that it should be more fully elaborated. This may seem a quite harsh criticism, for it is directed towards one of the basic assumptions of the analysis, but it is at the same time the merit of Cristiano Antonelli to expand the equilibrium approach as far as possible in order to exhibit its - today's - limitation in that respect. This is a feature that deserves much more attention and this book could be a starting point. G. Westermann, Fachhochschule Harz, Friedrichstrasse 57-59, D-38855 Wernigerode << zurück zu Publikationen |
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