The cost of knowledge

Abstract

This chapter explores the knowledge cost function, the study of which makes possible important progress in grasping the determinants of the large variance in the cost of innovation across firms. The amount of external knowledge and internal stocks of knowledge that firms can access and use in the generation of new technological knowledge helps firms reduce the costs of innovation. The empirical section is based upon companies listed on the financial markets in the UK, Germany, France and Italy for the period 1995–2006 for which information about patents have been gathered. The econometric analysis of the costs of innovation knowledge considers the unit costs of patents alongside R & D expenditure and the stock of internal and external knowledge for each firm. The results confirm that the stock of internal knowledge and access to external knowledge play key roles in assessing the actual capability of each firm to generate new technological knowledge.

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