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econ2540代写-ECON2540
时间：2022-09-13
ECON2540 Economics of
Innovation and Entrepreneurship
TOPIC 1
The Economics of Information & Entrepreneurship in
the Knowledge-Based Economy
Course Preliminaries
Introductions
Topic 1 – Part A
Foundational concepts
→ part B next week
Lecture Outline
ECON2540 Topic 1 2
Parallel teaching – classroom rules
3
Face-to-face
Zoom
Cameras
On when
speaking
Microphones
Muted unless
speaking
Contribute to
discussion in Chat
Use Chat for questions
“Raise
hand”
to speak
Raise hand
to speak
Phones on
silent
No media
consumption
No loud
talking
Dr Geoffrey Jones
Room 636, Colin Clark Building (39)*
Email geoffrey.jones@uq.edu.au
Lecture, tutorials and consultations:
Refer to the Weekly Schedule document in the Blackboard >
Course Help folder
LinkedIn www.linkedin.com/in/geofj11
* p(success) < 0.05 except during consultation hours
Lecturer and course coordinator
ECON2540 Topic 1 4
Mr Kyle Boonwaat
Teaching times – see document at:
Blackboard > Course Help > Weekly Schedule – Venues and Times
Tutor and teaching assistant
ECON2540 Topic 1 5
All communication from your teaching team via Blackboard
Announcements and your student email account
Check these regularly throughout the semester
Please try to minimise email to me!
If emailing, you must include the course name ECON2540 in
the Subject: header, and send from your official student email
account
As a general rule, I read and reply to email only during my
standard teaching hours (10am–2:00pm, Tuesday through
Thursday)
Communications
ECON2540 Topic 1 6
Meet the class
ECON2540 Topic 1 7
Meet the class
ECON2540 Topic 1 8
Meet the class
9
Electronic Course Profile (ECP) published on Blackboard
Answers many questions about this course
Take time to read thoroughly
Familiarise yourself with entire contents
Electronic Course Profile
ECON2540 Topic 1 10
Many without prerequisites have succeeded in past courses
• Some have not
This course challenges mainstream economics theory from time to time
• Difficult to appreciate without background understanding
Try to come up to speed as soon as possible on:
• Perfect competition theory and assumptions, e.g., the Invisible Hand
• Oligopoly, oligopsony, monopoly, monopsony market structures
• Price elasticities and economic surpluses
• Externalities and public goods theories
• Mainstream information economics: information asymmetries
What if I don’t have the prerequisites?
ECON2540 Topic 1 11
Important: Identify yourself to me during consults if lacking prereqs
One 2-hour lecture + one 1-hour tutorial per week + consults
Tutorials comprise a mixture of required reading, assignment
writing and exam answering support
Tutes lag lecture topics by one or more teaching weeks
See Blackboard Course Help for semester schedule
No tutorial in week 1
Don’t rely on AV recordings – you should take notes
Individually or preferably shared in reading / study groups
Weekly class structure
ECON2540 Topic 1 12
No set textbook
Per topic readings are listed in the ECP
Readings drill into, expand and support
lecture themes
Selected required readings will:
be worked through in tutorials
appear in exams
Recommended readings are for those
seeking higher grades
Most available online via Blackboard Library
Links and in High Use area of Social
Sciences and Humanities (SSH) Library
Course readings
ECON2540 Topic 1 13
Assessment schedule
ECON2540 Topic 1 14
Refer to ECP and Blackboard
1. Mid-semester exam: 30%
One hour open book non-invigilated online exam
→ 10min reading + 60min writing + 15min submission
One short essay: choose 1 out of 3 essay topics
During lecture teaching week 8, 10am Wednesday 14 September
Covers topics 1 – 4, up to and including teaching week 6
2. 1,500 word essay on economically disruptive innovation: 30%
Submit electronically by 4pm Monday 24 October
3. Final exam: 40%
Two hour open book non-invigilated online exam
Two short essays (choose 2 from 4 questions)
During University final exam period
Conceivably covers all course topics
Assessment
ECON2540 Topic 1 15
All lectures and tutorials and required readings are examinable
Lecture content is cumulative (strive to keep up!)
Lecture slides, tutorials, recordings, required and
recommended readings and your notes are essential learning
materials for this course
Lecture content and exam questions are NOT the same from
year to year
But practice answering past exams can help
Assessment (cont.)
ECON2540 Topic 1 16
You are strongly encouraged to review UQ’s examination policies at
https://ppl.app.uq.edu.au/content/examinations-procedures, and in
https://my.uq.edu.au/programscourses/course.html?course_code=ECON2540
Noteworthy policy adjustments for Semester 2
• Removal of the relaxation of supporting medical documentation
requirements: Students will once again be required to provide medical
documentation to support applications for an assessment extension or a
deferred examination on medical grounds.
• Time zone adjustments for online examinations will be allowed on
application for students enrolled in External courses for end of semester
exams only, and only where the student’s local time at the scheduled start
of the exam is before 7am or after 7pm.
Assessment – procedural considerations
ECON2540 Topic 1 17
Course activities timeline
Be curious
Come prepared and attend all lectures and tutorials
Actively engage in class
Take good quality notes, refine after lecture and tutorial sessions
Form and work in study/reading teams
Use Blackboard Discussion pages, FB groups, Zoom chat and/or tutorials…
Check Blackboard regularly (announcements, course material, etc.)
Use consultations – first come, first served drop in (may involve Zoom wait listing)
UQ policy: 2-unit subjects require 10–12 hours of class-based and self-directed
work
For exam preparation
Review lecture & tutorial recordings, re-read lecture & tute slides, study your
required and recommended readings, study and revise your notes
Practice writing previous exams
Attend and engage in exam and assignment essay writing tutorials – weeks 7 and 9
How to do well
ECON2540 Topic 1 19
Any questions before we begin?
Preliminaries
ECON2540 Topic 1 20
Topic 1
The Economics of Information & Entrepreneurship
in the Knowledge-Based Economy
Foundations
Required:
• Swann, G. M. P. (Peter). 2009. The Economics of Innovation: An
Introduction. Cheltenham, UK: Edward Elgar. Chapters 1–3.
• Earl, Peter E., & Wakeley, Tim. 2010. What do Entrepreneurs Do?
Business Economics: A Contemporary Approach. pp. 61–89.
Maidenhead, UK: McGraw-Hill Education. Chapter 3.
Recommended:
• Mazzarol, Tim, & Reboud, Sophie. 2020. Entrepreneurship and
Innovation: Theory, Practice and Context. Fourth edition. Springer.
Chapters 1–3.
Topic readings
ECON2540 Topic 1 22
This course is about the economics of innovation and entrepreneurship
Not about how to be an entrepreneur or how to innovate, but about the
nature of innovation and entrepreneurship in terms of the market
process and the logic of industrial, technological and institutional
dynamics and economic evolution
We will use (neo-)Schumpeterian or evolutionary economics and
innovation-focussed information economics frameworks, rather than
neoclassical economics models
We examine general models of economic evolution in terms of
systems and processes of innovation, entrepreneurship and
knowledge diffusion
We consider technological, industrial, social, institutional and market
dynamics
We consider information, network and growth of knowledge dynamics
We consider innovation policy
What this course is about
ECON2540 Topic 1 23
Economics studies:
• value demand / consumption
value distribution
value production
given various situational constraints and framework assumptions (axioms)
particularly those imposed by scarcity (e.g., wants exceed availability → rationing
and other behaviours based on opportunity costs → markets)
Many schools of economic thought (economics pluralism), including:
• Neoclassical (mainstream/orthodox) economics (tends to math models)
→ as systems of rational choices (i.e., optimal or efficient management of
scarce resources)
→ value conceived in terms of well-being or utility defined variously as
given or revealed or presumed wants by interacting “representative agents”
• Heterodox economics (tends to case study based explanations)
→ E.g., evolutionary, information, institutional, behavioural, development,
environment, Austrian, Marxian, feminist, etc economics
→ distinct emphasis on evolving, institutionally-conditioned, complex
system, market agnostic, social phenomena
Foundational concepts – economics
24
poverty, resource insecurity, conflict, contention
racial, class, religious, gender, ablement, work, wealth, educational
and other inequities, injustices and hegemonies
lopsided globalisation, urbanisation, mass migration, cultural
integration, disintegration and extinction, post-conflict reconciliation,
cross-generational detraumatisation
overpopulation, increasing longevity, top-heavy age structures, post-
retirement complexities, sub-replacement and many child ideologies
lifestyle disease profiles, antimicrobial resistance, pandemic risks,
vaccine avoidance
appropriation and sell-off of the commons, climate change,
environmental degradation, habitat encroachment, monoculturism,
superpervasive ecotoxins, ecological collapse, species harm and loss
Real value concerns
25
technological, social and economic disruption, hyperconnectivity,
velocity of change, systemic volatility, hovering precariousness,
unpredictability and uncertainty on the way people think and behave
breakdowns of connection with society, culture and place, international
and generational discontinuities, the rise of algorithmically influenced
social media, fears of missing out, persistent under-employment of the
marginalised, poverty traps, partisanship, within-group discontent over
socio-economic status, radicalisation, isolation, homelessness,
addictions, anomie, suicide
under-permissioned mass personal information collection,
surveillance, mass data integration, on-selling, technological analysis
and use by governments, oligopolies, criminals and other self-serving
actors, opaque oversight, weak safeguards
Real value concerns
26
institutionalised consumerism, mega-corporations, debt and influence,
increasing business shock fragility (anti-resilience) fuelled by relentless
cost and operating slack reduction ideologies and structural profit-taking
pressures, velocity of capital, capital flight, institutionalised tax avoidance,
fraud and corruption
heightened economic, political and sovereign nation coordination systems
tensions and failures, inability of established institutions to handle modern
crises, reform complexity and resistance, vested interests, attacks on
press freedom, sanctioned and unsanctioned misinformation, unlimited
growth doctrines, policy lags, short-termism
increasing bureaucratisation, de-risking and public defunding of research,
higher education, journalism and other institutions of critical enquiry,
communication and thought
affiliation as a core source of meaning, crises of confidence in liberal
democracies, rise of illiberal democracies and strongman “cult of
personality” leadership, structural polarisation, non-cooperation,
complacency, complicity, mistrust.
Real value concerns
27
• Many issues have been with us for some time
• Many bring opportunities or benefits, at least to the well placed, the
canny or the well endowed, or in the short run
• Increasing weight, scale and interconnectedness of these is either
harming or threatening to harm millions of present and future people
• Addressing each issue and its effects requires a holistic understanding
of the structure of numerous interactions occurring at multiple scales
• Developing such insight aligns poorly with standard (market focussed)
approaches
• Requires integrated complex systems approach, including inter alia
• Information/knowledge economics
• Evolutionary economics
• Behavioural and institutional socio-economics
Value – “wicked” problems
ECON2540 Topic 1 28
If the core of economics is about the efficient production, distribution and
consumption of value, we must be clear about what we mean by value (and
values).
Australian Prime Minister John Howard famously wanted Australians to be
“comfortable and relaxed” about their past, present and future
Australian Prime Minister Malcolm Turnbull: “Ideas boom” to drive the
Australian economy would “incentivise, dynamise, energise”, promoting “a
national culture of innovation, of risk-taking”
Relevant questions for social sciences:
How does value develop, grow and extinguish? In individuals? In groups? In
societies?
What do we mean by value development, growth and extinction?
Is value intrinsic or extrinsic?
How does what people value differ across individuals, collectives and time?
What disciplines study value / values? How do their focusses differ?
Foundational innovation concepts – value
29
“Tastes neither change capriciously nor differ importantly between
people. On this interpretation one does not argue over tastes for the
same reason that one does not argue over the Rocky Mountains—both
are there, will be there next year, too, and are the same to all men.”
Stigler, George & Becker, Gary (1977). De Gustibus non est Disputandum. American
Economic Review. 67(2): 76–90.
“Historical studies of the growth in real wages and output depend upon
the accurate measurement of the price trends of goods and services.
Over long periods of time, the consumption bundle has changed
profoundly, and most of today’s consumption includes items that were
not produced, and in some cases not even conceived, at the beginning
of the 19th century.”
Nordhaus, William. (1994). Do Real Output and Real Wage Measures Capture Reality?
The History of Lighting Suggests Not. Cowles Foundation for Research in Economics
Making sense of economists!
ECON2540 Topic 1 30
Mainstream economics perspective of entrepreneurs:
Intimately bound up with the orthodox theory of how scarce factors of
production should best be used for producing goods and services
Typical models include four broad factors of production: land, labour,
capital and entrepreneurs
Entrepreneurs organise the other factors of production so the firm can
produce efficiently
Entrepreneurs assumed to have full information about:
the availability of factor inputs
the quality of factor inputs
the variety of ways in which factor inputs can be combined
buyers’ demands for the firm’s products
Foundational concepts – entrepreneurs
(standard economics view)
ECON2540 Topic 1 31
Mainstream economics perspective is silent about:
• How the business opportunity which led to the founding of the firm was first
recognised
• Market prices comprise the essential channels of information
• How entrepreneurs decide best way to organise the productive resources
under their control
Assume if two entrepreneurs had access to the same quantity and quality of
factor inputs, including information (assumed perfect), then we should
expect both entrepreneurs to organise these factors in an identical way
Rival firms would be as efficient as each other
• Therefore: firm can only obtain an edge if it has ownership/access to factors of
production that are not available to its rivals
• I.e., comparative advantage derives from the ownership of unique physical
assets rather than unique intellectual assets such as the knowledge and the
imagination of the entrepreneur
Foundational concepts – entrepreneurs
(mainstream view)
32
Orthodox economists ignore the purposes (ends) for which
choices are made or for which commodities are produced and
consumed.
Heterodox economists have criticised this omission:
The mainstream economics “research program eliminated the
conscious component from the economic choices facing individuals
in a world of uncertainty. Choice was reduced to a simple
determinate exercise within a given ends-means framework,
something an automaton could master. The task of discovering
not only appropriate means, but also which ends to pursue, was
left out of the equation.”
Boettke, Peter J. 1997. Where did economics go wrong? Modern
economics as a flight from reality. Critical Review, 11(1), 11–64.
Another heterodox critique
ECON2540 Topic 1 33
Innovation [Latin innovare, -atum, from in in, and novus new]
Myriad definitions
Tutorial exercise: find a single definition of innovation that you strongly agree
with → be prepared to present and defend in your first tutorial
“Making new ideas real, so they create value.” (Tim Kastelle, UQBS, )
Tutorial exercise: consider Kastelle’s short video at
www.youtube.com/watch?v=HrcrkdLMmro&t. Be prepared to discuss from an
economics perspective in your next tutorial session
Innovating – “Developing and implementing better means for satisfying desires.”
(G. Jones. Forthcoming. On Value. Edward Elgar)
By extension:
Innovation: i) the process of innovating; ii) the result of this process
Intended either to increase value –or– protect value from erosion
Can be progressive or retardative (conservative, sustainable, resilient, etc.)
Note for economists: productivity improvement can result from but is not the
only outcome of innovation
Foundational concepts – innovation
34
Disruption [Latin from dirumpere, from dis- apart, asunder, and rumpere to break]
Some relatively permanent important degree of change, alteration, dysfunction
or breakdown of social, economic or socio-economic structure over a relatively
short period of time: punctuated change or punctuated evolution
Observable as relatively abrupt (quasi-)irreversible changes in the structure
of institutions (including informal institutions = culture), e.g.,
Structure of employment
Structure of international relations
Structure of industry sectors (e.g., energy, transport, banking, tech, markets)
Political structures (e.g., by revolution, dictatorial fiat)
Social structures (e.g., family structures, social coherence, social confidence)
Not impermanent / reversible changes, e.g.,
supply-side market shocks
most financial crises, e.g. GFC 2007–2009
Not slow, steady, non-abrupt change – cumulative evolution
Economics students: refer to definition of economic long run
Foundational concepts – disruption
35
Schumpeterian entrepreneur: risk-taking change agents
Disruptors: instigators of “creative destruction” (i.e., disruptive
innovation)
E.g., founders of high-growth businesses
Schumpeterian imitators: “replicative entrepreneurs”
E.g., founders of small businesses much like other small
businesses (mostly remain small)
Both types of change agent play important roles in successful
economies
Involves path dependency
Entrepreneurs build from others → open new pathways, step by step
Foundational concepts – entrepreneurs
(heterodox view)
ECON2540 Topic 1 36
Topic 1
The Economics of Information & Entrepreneurship
in the Knowledge-Based Economy
Week 2 – Foundations (continued)
Required:
• Swann, G. M. P. (Peter). 2009. The Economics of Innovation: An
Introduction. Cheltenham, UK: Edward Elgar. Chapters 1–3.
• Earl, Peter E., & Wakeley, Tim. 2010. What do Entrepreneurs Do?
Business Economics: A Contemporary Approach. pp. 61–89.
Maidenhead, UK: McGraw-Hill Education. Chapter 3.
Recommended:
• Mazzarol, Tim, & Reboud, Sophie. 2020. Entrepreneurship and
Innovation: Theory, Practice and Context. Fourth edition. Springer.
Chapters 1–3.
Topic readings
ECON2540 Topic 1 39
Since we cannot be certain in advance of implementing change,
innovation always involves uncertainty
Economists conventionally distinguish uncertainty vs risk*
* Knight, Frank H. (1921). Risk, Uncertainty and Profit. Houghton Mifflin.
Risk is retrospective (“frequentist” interpretation of probabilities)
Uncertainty is prospective (p of event is unknown):
Some researchers call this “unawareness”
Another distinction:
resolvable uncertainty vs radical uncertainty*
* Kay, John & King, Mervyn. (2020). Radical Uncertainty. The Bridge Street Press.
Resolvable uncertainty: uncertainty which can be removed by
looking something up
Radical uncertainty: no similar means of resolving the uncertainty
e.g., when will this pandemic end? when will another appear?
the “stuff of everyday experience”
Foundational concepts – innovation under uncertainty
40
Sources of value uncertainty:
1. Consumers of value
How can innovators know what people will value?
How can innovators know how much value people are
prepared to give up in return?
2. Evolving environments (e.g., preferences, technology,
society, regulatory, competitive)
Characteristic propensity for change (individuals,
organisations, institutions, etc.)
ECON2540 Topic 1 41
Foundational concepts – innovation under uncertainty
Uncertainty implies potential failure!
Reasons?
→ Ormerod, Paul. (2005). Why Most Things Fail: Evolution, Extinction
and Economics. Faber & Faber.
Expectations play a key role
Implications for:
Financing, e.g., corporate business case development, venture capitalism
Government policy, e.g., bankruptcy policy, R&D support, sunrise industry
policy, competition policy
Countervailing interests, e.g., conservationist mindsets (retardative vs
progressive)
Capitalism (Metcalfe, John Stanley. (2000). Restless Capitalism,
Experimental Economics. In During, Oakey, & Kipling (eds.), Technology-
Based Firms at the Turn of the Century. Elsevier Science)
42
Foundational concepts – innovation under uncertainty
Product delivers more value the more economic agents adopt it or products
compatible with it → increasing returns
Klemperer, Paul. 2008. Network Goods (Theory). In The New Palgrave
Dictionary of Economics. Palgrave Macmillan, London.
http://link.springer.com/content/pdf/10.1057%2F978-1-349-95121-5_2178-1.pdf.
Direct network effects
More actors in the network → more communication opportunities → more
incentives to join the network
Examples: phone, fax, email, instant messaging, languages, social network
platforms
Indirect network effects
More users of the system → more developers desire to supply components
for or leverage the system → more incentives for users to buy the system
Foundational concepts – network effect
ECON2540 Topic 1 43
Switching costs
• High compatibility (“stickiness”) between own assets
• Barrier (separatrix) concept
→ lose ability to take advantage of complementary own assets
• Focus is self-reinforcement
• E.g., switching costs from imperial to metric systems
Network effects
• Consumer values compatibility with other consumers’ assets
• Attractor concept
• Focus is mutual reinforcement
→ gain ability to take advantage of complementary others’ assets
Foundational concepts – network effect vs
switching costs
ECON2540 Topic 1 44
Lock-in to the wrong standard is a form of path dependency. E.g.,
David, Paul. 1985. Clio and the Economics of QWERTY. American
Economic Review. 75(2): 332–337
Requirement for system compatibility between keyboard “hardware”
and the “software” represented by the touch typist’s memory
learning costs
Each decision to choose QWERTY keyboard increases likelihood that
the next person uses QWERTY
Stochastic process leads to high concentration of one solution and
“crowding out” of alternatives
Quasi-irreversibility means that there is a very high and increasing
cost of switching to alternatives
Foundational concepts – path dependence
and lock-in
ECON2540 Topic 1 45
Inferior solution may preclude better alternatives simply by virtue of being first
Cowan, Robin. 1990. Nuclear Power Reactors: A Study in Technological Lock-
In. Journal of Economic History. 50(3): 541–567.
Light water dominates the market for power reactors
normal water, as opposed to heavy water, as both coolant and neutron
moderator
considered inferior to other technologies, e.g., thorium
Largely due to early adoption and development by U.S. Navy of light water
for submarine propulsion
Light water had a large head start when market for civilian power emerged
By the time other technologies were ready to enter the market, light water
was entrenched
Consider: Facebook vs. Google+
Foundational concepts – lock-in and quasi-
irreversibility
ECON2540 Topic 1 46
The “new” economy
• A communications revolution in progress based mainly on
business use of the Internet
• First phase 1995 – 2001
• Then labelled the “New Economy”
• Informational structure of markets, industries, economies
changing
The New Knowledge-Based Economy (KBE)
ECON2540 Topic 1 47
Three powerful forces (plus a bonus law)
Moore’s Law: The number of transistors on a microchip doubles every
18 months
Gilder’s Law: Bandwidth grows at least three times faster than
computer power
if computer power doubles every eighteen months per Moore’s Law,
then communications power doubles every six months
Metcalfe’s Law: the “value” or “power” of a network increases in
proportion to the square of the number of nodes on the network. Bob
Metcalfe explains: www.youtube.com/watch?v=pPXCuf7xLsM
BONUS law:
Andy and Bill’s Law: “what Andy gives, Bill takes away”
Drivers of the KBE
ECON2540 Topic 1 48
• Knowledge-intensive
• Massive convergences
• Rise of networks and network-like organisational structures in
industry
• Emergence of collaborative forms of business organisation
• Productivity increases in a low inflation environment
• Services sector innovation
• Digital divide
• rising inequality in the new economy
• Changing nature of globalisation and labour markets
Key features of the KBE
ECON2540 Topic 1 49
Topic 2 (week 3) – Information Economics and Innovation
Required readings
• Mandeville, Thomas. 1998. An Information Economics
Perspective on Innovation. International Journal of Social
Economics. 25 (2/3/4). pp. 357–364.
• Potts, Jason. 2003. The Prometheus School of Information
Economics. Prometheus. 21(4): pp. 477–486.
Advanced reading only
• Narayanamurti, V., & Odumosu, T. (2016). Cycles of Invention
and Discovery: Rethinking the Endless Frontier. Cambridge,
MA: Harvard University Press.
Next week’s topic (pre-recorded)
ECON2540 Topic 1 50
Innovation and Entrepreneurship
TOPIC 1
The Economics of Information & Entrepreneurship in
the Knowledge-Based Economy
Course Preliminaries
Introductions
Topic 1 – Part A
Foundational concepts
→ part B next week
Lecture Outline
ECON2540 Topic 1 2
Parallel teaching – classroom rules
3
Face-to-face
Zoom
Cameras
On when
speaking
Microphones
Muted unless
speaking
Contribute to
discussion in Chat
Use Chat for questions
“Raise
hand”
to speak
Raise hand
to speak
Phones on
silent
No media
consumption
No loud
talking
Dr Geoffrey Jones
Room 636, Colin Clark Building (39)*
Email geoffrey.jones@uq.edu.au
Lecture, tutorials and consultations:
Refer to the Weekly Schedule document in the Blackboard >
Course Help folder
LinkedIn www.linkedin.com/in/geofj11
* p(success) < 0.05 except during consultation hours
Lecturer and course coordinator
ECON2540 Topic 1 4
Mr Kyle Boonwaat
Teaching times – see document at:
Blackboard > Course Help > Weekly Schedule – Venues and Times
Tutor and teaching assistant
ECON2540 Topic 1 5
All communication from your teaching team via Blackboard
Announcements and your student email account
Check these regularly throughout the semester
Please try to minimise email to me!
If emailing, you must include the course name ECON2540 in
the Subject: header, and send from your official student email
account
As a general rule, I read and reply to email only during my
standard teaching hours (10am–2:00pm, Tuesday through
Thursday)
Communications
ECON2540 Topic 1 6
Meet the class
ECON2540 Topic 1 7
Meet the class
ECON2540 Topic 1 8
Meet the class
9
Electronic Course Profile (ECP) published on Blackboard
Answers many questions about this course
Take time to read thoroughly
Familiarise yourself with entire contents
Electronic Course Profile
ECON2540 Topic 1 10
Many without prerequisites have succeeded in past courses
• Some have not
This course challenges mainstream economics theory from time to time
• Difficult to appreciate without background understanding
Try to come up to speed as soon as possible on:
• Perfect competition theory and assumptions, e.g., the Invisible Hand
• Oligopoly, oligopsony, monopoly, monopsony market structures
• Price elasticities and economic surpluses
• Externalities and public goods theories
• Mainstream information economics: information asymmetries
What if I don’t have the prerequisites?
ECON2540 Topic 1 11
Important: Identify yourself to me during consults if lacking prereqs
One 2-hour lecture + one 1-hour tutorial per week + consults
Tutorials comprise a mixture of required reading, assignment
writing and exam answering support
Tutes lag lecture topics by one or more teaching weeks
See Blackboard Course Help for semester schedule
No tutorial in week 1
Don’t rely on AV recordings – you should take notes
Individually or preferably shared in reading / study groups
Weekly class structure
ECON2540 Topic 1 12
No set textbook
Per topic readings are listed in the ECP
Readings drill into, expand and support
lecture themes
Selected required readings will:
be worked through in tutorials
appear in exams
Recommended readings are for those
seeking higher grades
Most available online via Blackboard Library
Links and in High Use area of Social
Sciences and Humanities (SSH) Library
Course readings
ECON2540 Topic 1 13
Assessment schedule
ECON2540 Topic 1 14
Refer to ECP and Blackboard
1. Mid-semester exam: 30%
One hour open book non-invigilated online exam
→ 10min reading + 60min writing + 15min submission
One short essay: choose 1 out of 3 essay topics
During lecture teaching week 8, 10am Wednesday 14 September
Covers topics 1 – 4, up to and including teaching week 6
2. 1,500 word essay on economically disruptive innovation: 30%
Submit electronically by 4pm Monday 24 October
3. Final exam: 40%
Two hour open book non-invigilated online exam
Two short essays (choose 2 from 4 questions)
During University final exam period
Conceivably covers all course topics
Assessment
ECON2540 Topic 1 15
All lectures and tutorials and required readings are examinable
Lecture content is cumulative (strive to keep up!)
Lecture slides, tutorials, recordings, required and
recommended readings and your notes are essential learning
materials for this course
Lecture content and exam questions are NOT the same from
year to year
But practice answering past exams can help
Assessment (cont.)
ECON2540 Topic 1 16
You are strongly encouraged to review UQ’s examination policies at
https://ppl.app.uq.edu.au/content/examinations-procedures, and in
https://my.uq.edu.au/programscourses/course.html?course_code=ECON2540
Noteworthy policy adjustments for Semester 2
• Removal of the relaxation of supporting medical documentation
requirements: Students will once again be required to provide medical
documentation to support applications for an assessment extension or a
deferred examination on medical grounds.
• Time zone adjustments for online examinations will be allowed on
application for students enrolled in External courses for end of semester
exams only, and only where the student’s local time at the scheduled start
of the exam is before 7am or after 7pm.
Assessment – procedural considerations
ECON2540 Topic 1 17
Course activities timeline
Be curious
Come prepared and attend all lectures and tutorials
Actively engage in class
Take good quality notes, refine after lecture and tutorial sessions
Form and work in study/reading teams
Use Blackboard Discussion pages, FB groups, Zoom chat and/or tutorials…
Check Blackboard regularly (announcements, course material, etc.)
Use consultations – first come, first served drop in (may involve Zoom wait listing)
UQ policy: 2-unit subjects require 10–12 hours of class-based and self-directed
work
For exam preparation
Review lecture & tutorial recordings, re-read lecture & tute slides, study your
required and recommended readings, study and revise your notes
Practice writing previous exams
Attend and engage in exam and assignment essay writing tutorials – weeks 7 and 9
How to do well
ECON2540 Topic 1 19
Any questions before we begin?
Preliminaries
ECON2540 Topic 1 20
Topic 1
The Economics of Information & Entrepreneurship
in the Knowledge-Based Economy
Foundations
Required:
• Swann, G. M. P. (Peter). 2009. The Economics of Innovation: An
Introduction. Cheltenham, UK: Edward Elgar. Chapters 1–3.
• Earl, Peter E., & Wakeley, Tim. 2010. What do Entrepreneurs Do?
Business Economics: A Contemporary Approach. pp. 61–89.
Maidenhead, UK: McGraw-Hill Education. Chapter 3.
Recommended:
• Mazzarol, Tim, & Reboud, Sophie. 2020. Entrepreneurship and
Innovation: Theory, Practice and Context. Fourth edition. Springer.
Chapters 1–3.
Topic readings
ECON2540 Topic 1 22
This course is about the economics of innovation and entrepreneurship
Not about how to be an entrepreneur or how to innovate, but about the
nature of innovation and entrepreneurship in terms of the market
process and the logic of industrial, technological and institutional
dynamics and economic evolution
We will use (neo-)Schumpeterian or evolutionary economics and
innovation-focussed information economics frameworks, rather than
neoclassical economics models
We examine general models of economic evolution in terms of
systems and processes of innovation, entrepreneurship and
knowledge diffusion
We consider technological, industrial, social, institutional and market
dynamics
We consider information, network and growth of knowledge dynamics
We consider innovation policy
What this course is about
ECON2540 Topic 1 23
Economics studies:
• value demand / consumption
value distribution
value production
given various situational constraints and framework assumptions (axioms)
particularly those imposed by scarcity (e.g., wants exceed availability → rationing
and other behaviours based on opportunity costs → markets)
Many schools of economic thought (economics pluralism), including:
• Neoclassical (mainstream/orthodox) economics (tends to math models)
→ as systems of rational choices (i.e., optimal or efficient management of
scarce resources)
→ value conceived in terms of well-being or utility defined variously as
given or revealed or presumed wants by interacting “representative agents”
• Heterodox economics (tends to case study based explanations)
→ E.g., evolutionary, information, institutional, behavioural, development,
environment, Austrian, Marxian, feminist, etc economics
→ distinct emphasis on evolving, institutionally-conditioned, complex
system, market agnostic, social phenomena
Foundational concepts – economics
24
poverty, resource insecurity, conflict, contention
racial, class, religious, gender, ablement, work, wealth, educational
and other inequities, injustices and hegemonies
lopsided globalisation, urbanisation, mass migration, cultural
integration, disintegration and extinction, post-conflict reconciliation,
cross-generational detraumatisation
overpopulation, increasing longevity, top-heavy age structures, post-
retirement complexities, sub-replacement and many child ideologies
lifestyle disease profiles, antimicrobial resistance, pandemic risks,
vaccine avoidance
appropriation and sell-off of the commons, climate change,
environmental degradation, habitat encroachment, monoculturism,
superpervasive ecotoxins, ecological collapse, species harm and loss
Real value concerns
25
technological, social and economic disruption, hyperconnectivity,
velocity of change, systemic volatility, hovering precariousness,
unpredictability and uncertainty on the way people think and behave
breakdowns of connection with society, culture and place, international
and generational discontinuities, the rise of algorithmically influenced
social media, fears of missing out, persistent under-employment of the
marginalised, poverty traps, partisanship, within-group discontent over
socio-economic status, radicalisation, isolation, homelessness,
addictions, anomie, suicide
under-permissioned mass personal information collection,
surveillance, mass data integration, on-selling, technological analysis
and use by governments, oligopolies, criminals and other self-serving
actors, opaque oversight, weak safeguards
Real value concerns
26
institutionalised consumerism, mega-corporations, debt and influence,
increasing business shock fragility (anti-resilience) fuelled by relentless
cost and operating slack reduction ideologies and structural profit-taking
pressures, velocity of capital, capital flight, institutionalised tax avoidance,
fraud and corruption
heightened economic, political and sovereign nation coordination systems
tensions and failures, inability of established institutions to handle modern
crises, reform complexity and resistance, vested interests, attacks on
press freedom, sanctioned and unsanctioned misinformation, unlimited
growth doctrines, policy lags, short-termism
increasing bureaucratisation, de-risking and public defunding of research,
higher education, journalism and other institutions of critical enquiry,
communication and thought
affiliation as a core source of meaning, crises of confidence in liberal
democracies, rise of illiberal democracies and strongman “cult of
personality” leadership, structural polarisation, non-cooperation,
complacency, complicity, mistrust.
Real value concerns
27
• Many issues have been with us for some time
• Many bring opportunities or benefits, at least to the well placed, the
canny or the well endowed, or in the short run
• Increasing weight, scale and interconnectedness of these is either
harming or threatening to harm millions of present and future people
• Addressing each issue and its effects requires a holistic understanding
of the structure of numerous interactions occurring at multiple scales
• Developing such insight aligns poorly with standard (market focussed)
approaches
• Requires integrated complex systems approach, including inter alia
• Information/knowledge economics
• Evolutionary economics
• Behavioural and institutional socio-economics
Value – “wicked” problems
ECON2540 Topic 1 28
If the core of economics is about the efficient production, distribution and
consumption of value, we must be clear about what we mean by value (and
values).
Australian Prime Minister John Howard famously wanted Australians to be
“comfortable and relaxed” about their past, present and future
Australian Prime Minister Malcolm Turnbull: “Ideas boom” to drive the
Australian economy would “incentivise, dynamise, energise”, promoting “a
national culture of innovation, of risk-taking”
Relevant questions for social sciences:
How does value develop, grow and extinguish? In individuals? In groups? In
societies?
What do we mean by value development, growth and extinction?
Is value intrinsic or extrinsic?
How does what people value differ across individuals, collectives and time?
What disciplines study value / values? How do their focusses differ?
Foundational innovation concepts – value
29
“Tastes neither change capriciously nor differ importantly between
people. On this interpretation one does not argue over tastes for the
same reason that one does not argue over the Rocky Mountains—both
are there, will be there next year, too, and are the same to all men.”
Stigler, George & Becker, Gary (1977). De Gustibus non est Disputandum. American
Economic Review. 67(2): 76–90.
“Historical studies of the growth in real wages and output depend upon
the accurate measurement of the price trends of goods and services.
Over long periods of time, the consumption bundle has changed
profoundly, and most of today’s consumption includes items that were
not produced, and in some cases not even conceived, at the beginning
of the 19th century.”
Nordhaus, William. (1994). Do Real Output and Real Wage Measures Capture Reality?
The History of Lighting Suggests Not. Cowles Foundation for Research in Economics
Making sense of economists!
ECON2540 Topic 1 30
Mainstream economics perspective of entrepreneurs:
Intimately bound up with the orthodox theory of how scarce factors of
production should best be used for producing goods and services
Typical models include four broad factors of production: land, labour,
capital and entrepreneurs
Entrepreneurs organise the other factors of production so the firm can
produce efficiently
Entrepreneurs assumed to have full information about:
the availability of factor inputs
the quality of factor inputs
the variety of ways in which factor inputs can be combined
buyers’ demands for the firm’s products
Foundational concepts – entrepreneurs
(standard economics view)
ECON2540 Topic 1 31
Mainstream economics perspective is silent about:
• How the business opportunity which led to the founding of the firm was first
recognised
• Market prices comprise the essential channels of information
• How entrepreneurs decide best way to organise the productive resources
under their control
Assume if two entrepreneurs had access to the same quantity and quality of
factor inputs, including information (assumed perfect), then we should
expect both entrepreneurs to organise these factors in an identical way
Rival firms would be as efficient as each other
• Therefore: firm can only obtain an edge if it has ownership/access to factors of
production that are not available to its rivals
• I.e., comparative advantage derives from the ownership of unique physical
assets rather than unique intellectual assets such as the knowledge and the
imagination of the entrepreneur
Foundational concepts – entrepreneurs
(mainstream view)
32
Orthodox economists ignore the purposes (ends) for which
choices are made or for which commodities are produced and
consumed.
Heterodox economists have criticised this omission:
The mainstream economics “research program eliminated the
conscious component from the economic choices facing individuals
in a world of uncertainty. Choice was reduced to a simple
determinate exercise within a given ends-means framework,
something an automaton could master. The task of discovering
not only appropriate means, but also which ends to pursue, was
left out of the equation.”
Boettke, Peter J. 1997. Where did economics go wrong? Modern
economics as a flight from reality. Critical Review, 11(1), 11–64.
Another heterodox critique
ECON2540 Topic 1 33
Innovation [Latin innovare, -atum, from in in, and novus new]
Myriad definitions
Tutorial exercise: find a single definition of innovation that you strongly agree
with → be prepared to present and defend in your first tutorial
“Making new ideas real, so they create value.” (Tim Kastelle, UQBS, )
Tutorial exercise: consider Kastelle’s short video at
www.youtube.com/watch?v=HrcrkdLMmro&t. Be prepared to discuss from an
economics perspective in your next tutorial session
Innovating – “Developing and implementing better means for satisfying desires.”
(G. Jones. Forthcoming. On Value. Edward Elgar)
By extension:
Innovation: i) the process of innovating; ii) the result of this process
Intended either to increase value –or– protect value from erosion
Can be progressive or retardative (conservative, sustainable, resilient, etc.)
Note for economists: productivity improvement can result from but is not the
only outcome of innovation
Foundational concepts – innovation
34
Disruption [Latin from dirumpere, from dis- apart, asunder, and rumpere to break]
Some relatively permanent important degree of change, alteration, dysfunction
or breakdown of social, economic or socio-economic structure over a relatively
short period of time: punctuated change or punctuated evolution
Observable as relatively abrupt (quasi-)irreversible changes in the structure
of institutions (including informal institutions = culture), e.g.,
Structure of employment
Structure of international relations
Structure of industry sectors (e.g., energy, transport, banking, tech, markets)
Political structures (e.g., by revolution, dictatorial fiat)
Social structures (e.g., family structures, social coherence, social confidence)
Not impermanent / reversible changes, e.g.,
supply-side market shocks
most financial crises, e.g. GFC 2007–2009
Not slow, steady, non-abrupt change – cumulative evolution
Economics students: refer to definition of economic long run
Foundational concepts – disruption
35
Schumpeterian entrepreneur: risk-taking change agents
Disruptors: instigators of “creative destruction” (i.e., disruptive
innovation)
E.g., founders of high-growth businesses
Schumpeterian imitators: “replicative entrepreneurs”
E.g., founders of small businesses much like other small
businesses (mostly remain small)
Both types of change agent play important roles in successful
economies
Involves path dependency
Entrepreneurs build from others → open new pathways, step by step
Foundational concepts – entrepreneurs
(heterodox view)
ECON2540 Topic 1 36
Topic 1
The Economics of Information & Entrepreneurship
in the Knowledge-Based Economy
Week 2 – Foundations (continued)
Required:
• Swann, G. M. P. (Peter). 2009. The Economics of Innovation: An
Introduction. Cheltenham, UK: Edward Elgar. Chapters 1–3.
• Earl, Peter E., & Wakeley, Tim. 2010. What do Entrepreneurs Do?
Business Economics: A Contemporary Approach. pp. 61–89.
Maidenhead, UK: McGraw-Hill Education. Chapter 3.
Recommended:
• Mazzarol, Tim, & Reboud, Sophie. 2020. Entrepreneurship and
Innovation: Theory, Practice and Context. Fourth edition. Springer.
Chapters 1–3.
Topic readings
ECON2540 Topic 1 39
Since we cannot be certain in advance of implementing change,
innovation always involves uncertainty
Economists conventionally distinguish uncertainty vs risk*
* Knight, Frank H. (1921). Risk, Uncertainty and Profit. Houghton Mifflin.
Risk is retrospective (“frequentist” interpretation of probabilities)
Uncertainty is prospective (p of event is unknown):
Some researchers call this “unawareness”
Another distinction:
resolvable uncertainty vs radical uncertainty*
* Kay, John & King, Mervyn. (2020). Radical Uncertainty. The Bridge Street Press.
Resolvable uncertainty: uncertainty which can be removed by
looking something up
Radical uncertainty: no similar means of resolving the uncertainty
e.g., when will this pandemic end? when will another appear?
the “stuff of everyday experience”
Foundational concepts – innovation under uncertainty
40
Sources of value uncertainty:
1. Consumers of value
How can innovators know what people will value?
How can innovators know how much value people are
prepared to give up in return?
2. Evolving environments (e.g., preferences, technology,
society, regulatory, competitive)
Characteristic propensity for change (individuals,
organisations, institutions, etc.)
ECON2540 Topic 1 41
Foundational concepts – innovation under uncertainty
Uncertainty implies potential failure!
Reasons?
→ Ormerod, Paul. (2005). Why Most Things Fail: Evolution, Extinction
and Economics. Faber & Faber.
Expectations play a key role
Implications for:
Financing, e.g., corporate business case development, venture capitalism
Government policy, e.g., bankruptcy policy, R&D support, sunrise industry
policy, competition policy
Countervailing interests, e.g., conservationist mindsets (retardative vs
progressive)
Capitalism (Metcalfe, John Stanley. (2000). Restless Capitalism,
Experimental Economics. In During, Oakey, & Kipling (eds.), Technology-
Based Firms at the Turn of the Century. Elsevier Science)
42
Foundational concepts – innovation under uncertainty
Product delivers more value the more economic agents adopt it or products
compatible with it → increasing returns
Klemperer, Paul. 2008. Network Goods (Theory). In The New Palgrave
Dictionary of Economics. Palgrave Macmillan, London.
http://link.springer.com/content/pdf/10.1057%2F978-1-349-95121-5_2178-1.pdf.
Direct network effects
More actors in the network → more communication opportunities → more
incentives to join the network
Examples: phone, fax, email, instant messaging, languages, social network
platforms
Indirect network effects
More users of the system → more developers desire to supply components
for or leverage the system → more incentives for users to buy the system
Foundational concepts – network effect
ECON2540 Topic 1 43
Switching costs
• High compatibility (“stickiness”) between own assets
• Barrier (separatrix) concept
→ lose ability to take advantage of complementary own assets
• Focus is self-reinforcement
• E.g., switching costs from imperial to metric systems
Network effects
• Consumer values compatibility with other consumers’ assets
• Attractor concept
• Focus is mutual reinforcement
→ gain ability to take advantage of complementary others’ assets
Foundational concepts – network effect vs
switching costs
ECON2540 Topic 1 44
Lock-in to the wrong standard is a form of path dependency. E.g.,
David, Paul. 1985. Clio and the Economics of QWERTY. American
Economic Review. 75(2): 332–337
Requirement for system compatibility between keyboard “hardware”
and the “software” represented by the touch typist’s memory
learning costs
Each decision to choose QWERTY keyboard increases likelihood that
the next person uses QWERTY
Stochastic process leads to high concentration of one solution and
“crowding out” of alternatives
Quasi-irreversibility means that there is a very high and increasing
cost of switching to alternatives
Foundational concepts – path dependence
and lock-in
ECON2540 Topic 1 45
Inferior solution may preclude better alternatives simply by virtue of being first
Cowan, Robin. 1990. Nuclear Power Reactors: A Study in Technological Lock-
In. Journal of Economic History. 50(3): 541–567.
Light water dominates the market for power reactors
normal water, as opposed to heavy water, as both coolant and neutron
moderator
considered inferior to other technologies, e.g., thorium
Largely due to early adoption and development by U.S. Navy of light water
for submarine propulsion
Light water had a large head start when market for civilian power emerged
By the time other technologies were ready to enter the market, light water
was entrenched
Consider: Facebook vs. Google+
Foundational concepts – lock-in and quasi-
irreversibility
ECON2540 Topic 1 46
The “new” economy
• A communications revolution in progress based mainly on
business use of the Internet
• First phase 1995 – 2001
• Then labelled the “New Economy”
• Informational structure of markets, industries, economies
changing
The New Knowledge-Based Economy (KBE)
ECON2540 Topic 1 47
Three powerful forces (plus a bonus law)
Moore’s Law: The number of transistors on a microchip doubles every
18 months
Gilder’s Law: Bandwidth grows at least three times faster than
computer power
if computer power doubles every eighteen months per Moore’s Law,
then communications power doubles every six months
Metcalfe’s Law: the “value” or “power” of a network increases in
proportion to the square of the number of nodes on the network. Bob
Metcalfe explains: www.youtube.com/watch?v=pPXCuf7xLsM
BONUS law:
Andy and Bill’s Law: “what Andy gives, Bill takes away”
Drivers of the KBE
ECON2540 Topic 1 48
• Knowledge-intensive
• Massive convergences
• Rise of networks and network-like organisational structures in
industry
• Emergence of collaborative forms of business organisation
• Productivity increases in a low inflation environment
• Services sector innovation
• Digital divide
• rising inequality in the new economy
• Changing nature of globalisation and labour markets
Key features of the KBE
ECON2540 Topic 1 49
Topic 2 (week 3) – Information Economics and Innovation
Required readings
• Mandeville, Thomas. 1998. An Information Economics
Perspective on Innovation. International Journal of Social
Economics. 25 (2/3/4). pp. 357–364.
• Potts, Jason. 2003. The Prometheus School of Information
Economics. Prometheus. 21(4): pp. 477–486.
Advanced reading only
• Narayanamurti, V., & Odumosu, T. (2016). Cycles of Invention
and Discovery: Rethinking the Endless Frontier. Cambridge,
MA: Harvard University Press.
Next week’s topic (pre-recorded)
ECON2540 Topic 1 50
