SGS Brownbag: Alfonso Gambardella, Bocconi University

Search Speed and Theory Discovery: A Model for Innovation ((joint paper with Arnaldo Camuffo and Andrea Pignataro)

We develop a model for analyzing firm innovation strategies, distinguishing between the exploitation of established firm-level paradigms (which we call ”theories”) and the exploration of new paradigms. Firms engage in a staged search process, balancing the exploitation of current theories with the discovery of new ones. Central to the model is the role of speed, which we identify as a key driver of innovation and growth. The empirical analysis of a sample of all US public firms with at least one patent between 1986 and 2015, reveals that the speed at which firms exploit innovations within their existing paradigms is positively correlated with their exploration of new technological areas, asset growth, and an increase in patent output relative to R&D investment. Importantly, speed and exploration exhibit a complementary relationship, which only becomes significant beyond a certain speed threshold. The model identifies four key drivers of innovation success: search speed within existing theories, the probability of discovering new theories, the potential to generate new paradigms, and capital assets. High search speeds boost early-stage productivity and resource accumulation, increasing the likelihood of discovering new theories and sustaining growth. Firms with strong theory generation and capital assets benefit significantly, explaining the hyper-growth seen in many high-tech companies. Conversely, slow search speeds lead to a focus on exploiting current theories, limiting new exploration and reinvestment. Policymakers should consider interventions that accelerate search-enhancing technologies, reduce capital costs, and foster theory generation across industries, promoting equitable growth and reducing disparities in innovation capacity.

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