Essays on building growth from ideas

In my dissertation, I study the interplay between innovation and economic growth with an emphasis on the misallocation of ideas and talent. The first chapter focuses on the allocation of the innovations themselves, considering the optimal allocation of ideas across firms, and how it can be achieved via a market for ideas. This is done by first creating an operational measure of technological propinquity between firms and inventions. Using this empirical measure, new stylized facts are documented which suggest that ideas may indeed be initially misallocated across firms, but the market for patents can alleviate the initial misallocation. A quantitative model is built to perform some thought experiments which suggest that the economic growth rate can be increased by reducing the frictions in this market. The second chapter investigates why some organizations and societies are more prolific than others in coming up with radical, path-breaking innovations, and marshals evidence showing that the cause might be the openness to disruption in their culture. In order to investigate this hypothesis, it is posited that firms and societies that are more open to disruption would allow the young to rise faster in the hierarchy. This theory allows one to use the age of the top management in organizations as a proxy for the intangible concept. It is documented that many measures of radical innovations are positively correlated with openness to disruption as captured by manager age. The third chapter analyzes the link between the misallocation of talent and innovation, asking the question whether the talented people in the society are given the chance to create new innovations that enhance social welfare. This is investigated empirically using a novel approach that utilizes the power of surnames in capturing socioeconomic status persistence across time. The results show that the social allocation favors the wealthy over the talented in determining who become inventors. The rest of the chapter develops a quantitative model of allocation of talent that can replicate the observed correlation patterns, and shows that progressive bequest taxation can reduce this misallocation