Technology and Innovation in Japan: Policy and Management for the Twenty-First Century

By Martin Hemmert; Christian Oberländer | Go to book overview

7

THE JAPANESE BUSINESS SYSTEM FOR CREATION AND DIFFUSION OF TECHNOLOGICAL KNOWLEDGE

Time for change?

Hiroyuki Odagiri

Introduction: the nature of technology

It is well-known that technology possesses characteristics akin to public goods, such as non-rivalry and non-excludability. Non-rivalry means that my use of a certain technological knowledge need not preclude you from using exactly the same knowledge, in contrast to private goods in which my eating an apple for instance automatically precludes you from eating the same piece of apple. Non-excludability means that I cannot exclude you from using the same knowledge. Patents, copyrights, and other intellectual property rights are artificial devices to create exclusivity to intrinsically non-excludable knowledge. Yet they are not complete and the resulting lack of appropriability, that is, of a mechanism for an inventor to appropriate all the returns from invention, has been argued to cause under-investment in technology (Arrow 1962).

From a social viewpoint, however, it is desirable to diffuse a knowledge widely because, once invented, the marginal cost of diffusion is supposedly small. A dilemma is therefore inevitable: on the one hand, creating appropriability is desirable to enhance incentives for invention; on the other, encouraging diffusion is desirable from the viewpoint of a socially efficient use of invention.

Yet, the following may be stated. First, many firms actually do not rely on patents to appropriate returns from their inventions. 1 Second, whether patent protection is effective or not, the firm cannot survive without innovation efforts, particularly in high-technology industries. To this extent,

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