« The political economy of innovation »

Abstract : In this paper, we propose a theoretical framework to unify strategic responses of the elite to an innovation that has the potential of disrupting existing channels of political control. The elite has three motives: rent-seeking, factor-price manipulation, and staying in power. It has several policy options: appropriation, dissipation of the rents, blocking the innovation, or permitting it and sharing the rents with the innovators. The choice of policy depends on four structural features of the innovation: complementarities with existing assets, mobility (and ease to conceal), replicability, and economies of scale. We also explore political outcomes, such as political competition and regime change, and institutional outcomes, in particular investment or disinvestment in state capacity.