Pecuniary knowledge externalities: the convergence of directed technological change and the emergence of innovation systems

The new understanding of the characteristics of knowledge indivisibility and knowledge appropriability makes it possible to appreciate the key role pecuniary externalities play both in the generation and in the exploitation of technological knowledge. Pecuniary externalities affect access to external knowledge and its localized appropriation, by the intensive use of idiosyncratic factors and the introduction of biased technological change. Their combined effect shapes the convergence of the directed features of the knowledge generated at the firm level and explains the path-dependent emergence of local and technological innovation systems and the dynamics of innovation cascades. Copyright 2008 , Oxford University Press.