One of the most striking features of contemporary industrial economies is their ability to offer an ever-expanding and improving range of products. Personal computers, tiny pacemakers, digital watches, and VCRs simply did not exist, and were not even dreamt of, only a few decades ago. Such product innovations play an increasingly important role in modern economic growth, and it is therefore imperative that economists come to grips with them, just as they have done with traditional economic phenomena.In this skillfully crafted and imaginative study, Manuel Trajtenberg develops the tools to quantify and analyze the notion of product innovation. He argues persuasively that the magnitude of an innovation should be equated with the social benefits that it generates. Drawing from the "characteristics approach" to demand theory and the econometrics of discrete choice, he presents an ingenious method to estimate the benefits from product innovations that accrue to the consumer over time. His method centers on consumer preferences for different product attributes -such as speed and size of memory in computers-and then uses those preferences to evaluate the changes in attributes.Trajtenberg applies his approach to the study of one of the most remarkable innovations in medical technology--Computed Tomography (CT) scanners. He assembled for that purpose an impressive set of data on every aspect of the new technology, from qualities and prices, patents and research, to details on virtually every sale in the United States during the decade following the introduction of CT in 1973. This close-up view of an innovation, quite rare in economic literature, offers valuable insights on the nature of the innovative process, the interaction between innovation and diffusion, the effects of uncertainty about quality, and the implications of changing preferences.
Manuel Trajtenberg is Assistant Professor of Economics at Tel-Aviv University.
Introduction The Measurement of Innovations The Magnitude of Innovations A Method for Measuring Innovations The Formal Derivation of the Surplus Function The Construction of Quality-Adjusted Price Indices on the Basis of DELTAW ADELTAW-Based Indices versus Hedonic Prices The Decomposition of W( ) and the "Taste for Horizontal Variety" The Case of CT Scanners The Ongoing Revolution in Diagnostic Technologies The Story of CT Scanners Diffusion and Regulation Technical Aspects Data and Sources The Impact of Regulation on the Diffusion of CT Scanners Determinants of the Adoption Time of CT for Individual Hospitals The Assessment of Image Quality Data on CT Scanners The Choice of CT Scanners and the Dynamics of Preferences Specification issues Estimating the Hedonic Price Functions The Estimation of the MNL Head versus Body Scanners The Nested Multinomial Logit Model Changes in Preferences and Inducement Mechanisms Derivation of Cross Elasticities in the Nested MNL Surveys of Users of CT Scanners Gains from Innovation in CT Preliminary Issues in Computing the Gains Incremental Gains from Innovation Total Gains and the Interdependency of Innovation and Dffusion R&D Expenditures and Social Returns The Time Profile of Benefits and Costs The Construction of Real Price Indices Sources of Data on R&D Expenditures on CT Patents as Indicators of Innovation The Value of Patents Using Patent Data Patents in Computed Tomography The Statistical Evidence The Patents-R&D-Patents Connection and Other Extensions The Usefulness of Patent Data Online Search and Retrieval of Patent Data from Large Databases A Statistical Analysis of Truncation and Age Effects References Index