Geography Reference
In-Depth Information
P
E
1
E
2
q
2
q
1
Q
Figure 7
.
3
Positive and negative pecuniary knowledge externalities
respect to pure private goods - when the access to external knowledge that spills from
original inventors is possible at a cost than is lower than in the case of a pure private
good. Hence the actual amount of knowledge generated in the system may be much
closer to equilibrium levels. The prices of knowledge may be lower. The actual extent
to which such positive and negative ef ects apply and their relative weight depend very
much upon the localized conditions of action of agents.
4
The characteristics of the system in terms of knowledge governance mechanisms and
hence the levels of knowledge transaction, communication and interaction costs are
crucial to assess the long-term viability of the system dynamics. The analysis so far has
not taken into account the negative ef ects of the number of agents that are active in
the same knowledge pool and share basic knowledge complementarities on the levels of
knowledge appropriability and hence the price for the products that embody new tech-
nological knowledge.
When such ef ects are taken into account we can introduce the notion of net pecuniary
knowledge externalities. Net pecuniary knowledge externalities are the result of the joint
assessment of both negative and positive ef ects. The latter reduce the costs of external
knowledge and consequently, via the increase in total factor productivity, the costs of
goods. The former reduce the price at which either knowledge as a good or as an input
that incorporates the new knowledge can be sold. The levels of net pecuniary externali-
ties depend on the combined ef ects of positive and negative pecuniary knowledge.
It is easy to derive the formal conditions to identify the optimum size of the local pools
of knowledge. We know that the value of output depends on the quantity and its price
P
:
Y
=
PQ
(7.6)
The price at which the good that embodies new knowledge is sold is inl uenced by the
number
N
of i rms that have access to the same knowledge pool:
P
=
P
* /
z
(
N
)
(7.7)
