In our work on biotechnology, it was possible to track a relatively narrowly defined body of knowledge from its origins (largely in universities), to development of inventions represented by patents, to commercial applications in firms and ultimately into goods and service in the market place. Nanobank aims to define a similarly relative narrow but even more broadly interdisciplinary set of articles, patents, and firms with the affiliation and/or location of individual participants identified so far as possible. It is natural to want to compare activities in nanotechnology (or biotechnology) with those in other science and technology (S&T) areas, but in attempting to do so we learned that it was generally more difficult to find narrowly defined areas of science (categorizing articles and doctoral programs) that correspond to narrowly defined areas of technology (categorizing by patent classes) that correspond to narrowly defined areas of industry (categorizing by governmental or financial market definitions of industry).

Regional growth of new knowledge in nanotechnology, as measured by counts of articles and patents in the open-access digital library NanoBank, is shown to be positively affected both by the size of existing regional stocks of recorded knowledge in all scientific fields, and the extent to which tacit knowledge in all fields flows between institutions of different organizational types. The level of federal funding has a large, robust impact on both publication and patenting. The data provide support for the cumulative advantage model of knowledge production, and for ongoing efforts to institutionalize channels through which cross-organizational collaboration may be achieved.

The basic competitive model with freely available technology is suited for static industries but misleading as applied to major innovative economies for which development of new technologies equals in magnitude around 10% of gross domestic investment.We distinguish free generic technology from proprietary technologies resulting from risky investment with uncertain outcome.The totality of possible outcomes drives the national innovation system and the returns to a particular successful technology cannot be compared to its own direct investment costs.Eureka moments are hardly ever self-enabling and incentives are required to motivate investment attempting to turn them into an innovation.The alternative to a valuable proprietary innovation is not the same innovation freely available but the unchanged generic technology.Growth is concentrated in any country at any time in a few firms in a few industries that are achieving metamorphic technological progress as a result of breakthrough innovations.So long as the entry and exit of firms using the generic technology sets the price in an industry, one or more price-taking firms can coexist with proprietary technologies yielding more or less substantial quasi-rents to the sunk development costs.Consumer welfare is increased if an innovator creates a proprietary technology such that the market equilibrium price is reduced and output increased.If the technological breakthrough is sufficiently large for the innovator to drive all generic producers out of the industry and increase output as a wealth-maximizing monopolist, consumer welfare is surely increased.After some time, the innovative technology will diffuse into an imitative generic technology.The best innovators develop a stream of innovations so that technological leaders can maintain their status as dominant firm or monopolist for extended periods of time despite lagged diffusion, and consumers benefit from this stream as well.The economics of an innovative nation are different from those of the no-growth stationary state which we teach and fall back on.We propose an ambitious agenda to integrate major research streams treating innovation as an object of economic analysis into our standard models.

Research on the nanoscale has revolutionized areas of science and has begun to have an impact on, and be impacted by, society and economy.We are capturing early traces of these processes in NanoBank, a large scale, multi-year project to provide a public data resource which will link individuals and organizations involved in creating and using nano S&T across a number of activities including publishing, patenting, research funding, and commercial financing, innovation and production.We report preliminary results from our work in progress.Nanotechnology is on a similar trajectory to biotechnology in terms of patents and publication, already accounting for over 2.5% of scientific articles and 0.7% of patents.Joint university-firm research is widespread and increasing.Regional agglomeration is also evident in both science and commercial applications, with the main clusters of firm entry by both new and pre-existing firms forming around major research universities publishing in nanoscience.Nanoscience has been highly concentrated in the United States, a few European countries, and Japan, but China has recently passed Japan in total articles per year and is beginning to have a significant number of highly-cited articles.

America's most innovative firms (with 40%+ of U.S. patents assigned to U.S. entities during 1988–96) participate, often repeatedly, in the Commerce Department's Advanced Technology Program (ATP). Participation significantly increases firms’innovation (patenting) while receiving ATP support versus before and after. Firms generally increase patenting by 5–30 patents per year when participating—up 4 to 25% from before participation. University participation in a project increases firm patenting. Funding amount matters for single participants (often startups with small R&D budgets) with positive impact limited to firms with large grants. For joint ventures, participation is more important than funding level. (JEL O3, H5, L24)

In science‐based industries, world‐class scientists drive the most successful firms. These scientists are more likely to follow high‐stakes, high‐returns R&D strategies instead of more predictable incremental strategies. We develop an options pricing model in which the probability of stock‐price jumps increases with knowledge capital. GMM estimates show the probability of stock‐price jumps increases with three measures of knowledge capital intensity, two of which can be reasonably estimated contemporaneously. The model explains most variation in biotech firm market values. Firms with two standard deviations more knowledge capital are valued 10–50% more than firms with mean values of all variables.

Most firms achieve perfective progress, incrementally improving commodities or productivity. But technological progress is concentrated in a few firms achieving metamorphic progress: forming or transforming industries with technological breakthroughs (e.g., biotechnology, lasers, semiconductors, nanotechnology). Unless congruent with incumbents' science and technology base, metamorphic progress promotes entry. Scientific breakthroughs embodied in discovering scientists, protected by natural excludability and transferred by learning-by-doing-with at the bench generally drive metamorphic progress. Embodied knowledge is rivalrous and leads to entry and industry dominance by star scientist-linked firms. Incorporating this scientific entrepreneurial process is essential to improving-if not transforming-endogenous growth models.

This paper examines the value of collecting archival data to evaluate the Advanced Technology Program's (ATP) impact on participants' short- and long-term business success. We use two types of indicators of business success: patenting activity which can be tracked for all participants, and financial market data which is extensive for public firms but limited for start-up and other private firms to receipt of venture capital, membership in joint ventures and strategic alliances, and going public in issuing stock. We compare effects of program design differences, primarily joint venture versus single participant projects, on changes in the rate of patenting before and after participation in ATP. The discussion of patent archives serves to document data for later analyses; discussion of other data sources is intended both to guide other researchers and to inform administrative decisions about collecting similar archival data as part of routine assessment activity. We find that patenting rates generally increase after ATP participation under a number of different program and participant variations. Joint venture participants consistently show increases in patenting after beginning ATP participation, while results vary with definitions for single participants. We also demonstrate that it is possible to identify the timing and amounts of receipt of venture capital by private firms participating in ATP.

Scientist-entrepreneurs prominent in biotech and other high-technology industries view going public not as a cost-effective source of capital but as a cross between selling a now-proven innovation and winning a lottery. Unlike most empirical IPO analyses confined to those firms that go public, we study substantially all the non-public biotech firms founded up through 1989. The probability that one of these firms goes public in any given year increases with the quality of the firm's science base (use of recombinant DNA technology, number of articles by star scientists as or with firm employees, number of biotech patents), the percentage of eligible firms going public the year the firm was founded as a strategy indicator, recent biotech returns as an indicator of a hot market, and whether or how many rounds of venture capital has been obtained. The same key factors increase the expected proceeds raised from IPOs, but the quality of the firm's science base plays a more dominant role. All firms going public try to look like the next Genentech, but only those with the strong science base necessary for success attract large investments.

Commercializing knowledge involves transfer from discovering scientists to those who will develop it commercially. New codes and formulae describing discoveries develop slowly-with little incentive if value is low and many competing opportunities if high. Hence new knowledge remains naturally excludable and appropriable. Team production allows more knowledge capture of tacit, complex discoveries by firm scientists. A robust indicator of a firm's tacit knowledge capture (and strong predictor of its success) is the number of research articles written jointly by firm scientists and discovering, “star” scientists, nearly all working at top universities. An operationally attractive generalization of our star measure-collaborative research articles between firm scientists and top research university scientists-replicates the impact on firm success. In panel analyses, publications by firm scientists with stars and/or top 112 university scientists increase the number and citation rate for firm patents. Further, star articles increase these rates significantly more than other top 112 university scientists' articles. Cross-sectional analyses of products and employment show a similar pattern of positive effects on firms' success of collaborations with stars or top university scientists, but estimates of differential effects are nonrobust due to multicollinearity. Venture capital funding has significant, usually positive effects on firm success.

Breakthroughs with natural excludability are transferred to industry by top academic scientists (stars) working in or with firms. Movement to firms depends on scientists' quality, moving costs, and reservation wage. Scientists' quality, moving costs, trial frequency, interfering academic offers, and productivity of stars already in firms determine reservation wage. In group‐duration analysis for biotechnology, stars move to firms faster as their quality, human focus, and outside coauthorships increase; local firms and productivity of local stars in firms increase; and top local universities decrease. Stars move to firms full or part time similarly, but significance drops for rarer full‐time moves.

Using detailed data on biotechnology in Japan, we find that identifiable collaborations between particular university star scientists and firms have a large positive impact on firms' research productivity, increasing the average firm's biotech patents by 34 percent, products in development by 27 percent, and products on the market by 8 percent as of 1989–1990. However, there is little evidence of geographically localized knowledge spillovers. In early industry formation, star scientists holding tacit knowledge required to practice recombinant DNA (genetic engineering) were of great economic value, leading to incentives motivating their participation in technology transfer. In Japan, the legal and institutional context implies that firm scientists work in the stars' university laboratories in contrast to America where the stars are more likely to work in the firm's labs. As a result, star collaborations in Japan are less localized around their research universities so that the universities' local economic development impact is lessened. Stars' scientific productivity is increased less during collaborations with firms in Japan as compared to the U.S.

In the following articles Freedman and Jordan examine institutional arrangements that promote high and rising incomes. The quality of institutions may be as important as human capital, investment, and population growth in determining which nations are most prosperous.