The Rise of Knowledge Economics

Cesar Hidalgo at Scientific American: “Nearly 30 years ago, Paul Romer published a paper exploring the economic value of knowledge. In that paper, he argued that, unlike the classical factors of production (capital and labor), knowledge was a “non-rival good.” This meant that it could be shared infinitely, and thus, it was the only thing that could grow in per-capita terms.

Romer’s work was recently recognized with the Nobel Prize, even though it was just the beginning of a longer story. Knowledge could be infinitely shared, but did that mean it could go everywhere? Soon after Romer’s seminal paper, Adam Jaffe, Manuel Trajtenberg and Rebecca Henderson published a paper on the geographic diffusion of knowledge. Using a statistical technique called matching, they identified a “twin” for each patent (that is, a patent filed at the same time and making similar technological claims).

Then, they compared the citations received by each patent and its twin. Compared to their twins, patents received almost four more citations from other patents originating in the same city than those originating elsewhere. Romer was right in that knowledge could be infinitely shared, but also, knowledge had difficulties travelling far….

What will the study of knowledge bring us next? Will we get to a point at which we will measure Gross Domestic Knowledge as accurately as we measure Gross Domestic Product? Will we learn how to engineer knowledge diffusion? Will knowledge continue to concentrate in cities? Or will it finally break the shackles of society and spread to every corner of the world? The only thing we know for sure is that the study of knowledge is an exciting journey. The lowest hanging fruit may have already been picked, but the tree is still filled with fruits and flavors. Let’s climb it and explore….(More)”