A Calculation of the Social Returns to Innovation
What’s the social return of Innovation? This is difficult to measure due to many types of Knowledge spillover, which produce indirect benefits.
The intuition for our approach is straightforward. Modern growth theory, following the work of Robert Solow, tells us under reasonably broad conditions that the growth rate of GDP per person will be equivalent to the growth rate in total factor productivity (Solow 1956)
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Taking this approach seriously, the average returns to innovative investments are determined by linking the aggregate cost of innovation investments to the aggregate production increase that results.