NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Welfare Analysis of Product Innovations with an Application to CT Scanners

Manuel Trajtenberg

NBER Working Paper No. 1724
Issued in October 1985
NBER Program(s):   PR

The main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric, i.e., equating the "magnitude" of innovations with the welfare gains that they generate. This research design is applied to the case of Computed Tomography (CT) Scanners, a revolutionary innovation in medical technology. The econometric procedure centers on the estimation of a discrete choice model (the nested multinominal logit), that yeilds the parameters of a utility function defined over the-changing-quality dimensions of the innovative product. The estimated flow of social gains from innovation is used primarily to compute a social rate of return to R&D, to explore the interrelation between innovation and diffusion, and to trace the time profile of benefits and costs, the latter suggesting the possible occurance of "technological cycles".

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Document Object Identifier (DOI): 10.3386/w1724

Published: Journal of Political Economy, April 1989, 97(2), 444-479.

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