K. Okumura · 2026 · arXiv (Cornell University)
DOI: 10.48550/arxiv.2610.14969 · cited by 0 works (OpenAlex) · open-access PDF
Innovation changes welfare by improving technology and reallocating inputs across producers with different markups. When producers choose markups optimally, an innovator’s own output and price adjustments have no private value at the margin, so reallocation affects its profit only through others’ responses. For an innovator small in its markets, the change in allocative efficiency is of the same order as its cost savings but does not reach its profit. A process innovator is paid for its cost savings, giving up its own and downstream markups on added output. U.S. public firms in 2015, these abandoned markups average 26 percent of that savings. For innovators accounting for 56 percent of sales, allocative efficiency rises or falls by more than a tenth of their private return.
Machine translation (Meta M2M100); the English original follows.
Innovation changes welfare by improving technology and reallocating inputs across producers with different markups. When producers choose markups optimally, an innovator's own output and price adjustments have no private value at the margin, so reallocation affects its profit only through others' responses. For an innovator small in its markets, the change in allocative efficiency is of the same order as its cost saving but does not reach its profit. A process innovator is paid its cost saving, forgoing its own and downstream markups on added output. For U.S. public firms in 2015, these forgone markups average 26 percent of that saving. For innovators accounting for 56 percent of sales, allocative efficiency rises or falls by more than a tenth of their private return. With estimated spillovers, patenting firms' R&D has a social return 6.24 times its private return.
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Topics: Allocative efficiency, Economics, Innovator, Profit (economics), Microeconomics, Welfare
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