smart specialization: opportunities and tools for iterative learning

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Development Impact Evaluation Initiative Smart Investment for Smart Specialization Warsaw, June 27, 2012 Smart specialization: opportunities and tools for iterative learning Paulo Correa Lead Economist, World Bank Arianna Legovini Head, Development Impact Evaluation Initiative (DIME), World Bank

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Paulo Correa Lead Economist, World Bank Arianna Legovini Head, Development Impact Evaluation Initiative (DIME), World Bank. Smart specialization: opportunities and tools for iterative learning . Objectives of presentation. - PowerPoint PPT Presentation

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Page 1: Smart specialization: opportunities and tools for iterative learning

Development Impact Evaluation Initiative

Smart Investment for Smart Specialization

Warsaw, June 27, 2012

Smart specialization: opportunities and tools for iterative learning

Paulo Correa Lead Economist, World Bank

Arianna Legovini Head, Development Impact Evaluation Initiative (DIME), World Bank

Page 2: Smart specialization: opportunities and tools for iterative learning

Objectives of presentation

Provide motivation for the use of iterative/experimental learning in innovation strategies

Develop a framework for identifying bottlenecks and market failures to justify interventions

Highlight how the use of impact evaluations can maximize R&D investment impact through rigorous measurement and learning

Page 3: Smart specialization: opportunities and tools for iterative learning

Background

Europe 2020: future of EC Cohesion Policy 2014-2020 dedicated to objectives of smart, sustainable and inclusive growth

Thematic concentration on research and innovation to maximize the impact of investment of structural funds

Research and innovation strategies for smart specialization (RIS3) to ensure effective implementation

Page 4: Smart specialization: opportunities and tools for iterative learning

Information and implications

Discovery through

experimentation

Risk

leve

l for

pol

icy m

aker

s

Enabling specializati

on

Unleash latent

comparative

advantage

Modernization

HIGH

MED

LOW

NO INFO PARTIAL INFO FULL INFO

Page 5: Smart specialization: opportunities and tools for iterative learning

Developing your RIS3: Where to specialize?

Where market information is lacking we may not know ex ante where to specialize

Policies targeting sectors/products not desirable due to incomplete and asymmetric information for policymakers

Ex ante decision-making process will likely be biased towards "incumbents"

Page 6: Smart specialization: opportunities and tools for iterative learning

Developing your RIS3:Finding one’s niche, together

Create enabling environment for efficient market selection Promote entrepreneurship across the board Successful companies will constitute the new

specialization of the country/region (self-discovery)

Develop a flexible strategy and integrate iterative learning Focus on measurable intermediate goals Identify bottlenecks and market failures Experiment, learn, adapt

Page 7: Smart specialization: opportunities and tools for iterative learning

Developing a flexible RIS3

------

------

------

---Determine measurable goals

------

------

------

---Identify bottlenecks and market failures

------

------

------

---Experiment, learn, adapt

Page 8: Smart specialization: opportunities and tools for iterative learning

------

------

------

---Determine measurable goals

------

------

------

---Identify bottlenecks and market failures

------

------

------

---Experiment, learn, adapt

Developing a flexible RIS3

Page 9: Smart specialization: opportunities and tools for iterative learning

Measurable goals

Overall objective Increase the impact of R&D expenditure

on national/regional developmentMeasurable goals (examples):

Increase private R&D and innovation investment

Accelerate R&D commercialization Improve technology adoption by SMEs Research excellence

Page 10: Smart specialization: opportunities and tools for iterative learning

Developing a flexible RIS3---------------------

Determine measurable goals

---------------------

Identify bottlenecks and market failures

---------------------

Experiment, learn, adapt

Page 11: Smart specialization: opportunities and tools for iterative learning

Identifying bottlenecks

Constraints to increasing private R&D and innovation investment Credit? Incentives? IP?

Constraints to improving technology adoption by SMEs Awareness? Skills? Critical mass?

Constraints to research excellence Skilled labor? Partnerships/coordination?

Let’s consider acceleration of R&D in more detail…

Page 12: Smart specialization: opportunities and tools for iterative learning

Basic

research

Proof of concept

Early stage

technology

development

Product

developme

nt

Product

marketing

Identify the weakest links in the chain to target, test, and learn from

R&D

Commercialization

Strengthening the innovation chain

Page 13: Smart specialization: opportunities and tools for iterative learning

Why would we assume this?

Strategy /instruments

• Early stage financing (ESF)

Goal

• R&D Commercialization

Our tendency is to start with the interventions and make assumptions about how they will help meet our goals

But, what is the basis for this assumption? Is the intervention justified?

Page 14: Smart specialization: opportunities and tools for iterative learning

Who?

Goal

• Increase R&D Commercialization

Target group

• Private sector start ups?

• Public research?• Established firms?

Start with the objective and identify who the bottleneck lies with

Page 15: Smart specialization: opportunities and tools for iterative learning

Why?Question/Goal

• Increase R&D Commercialization

Target group

• Public research

Market Failure

• Lack of early stage financing?• Poor intellectual property

rights?• Lack of mentoring services?• Coordination failure?

Identify why there is a need for public intervention (the market failure)

Page 16: Smart specialization: opportunities and tools for iterative learning

Why?Question/Goal

• Increase R&D Commercialization

Target group

• Public research

Market failure

• Lack of early stage financing

Market failure critical assessment

• Why?• Intangible collateral• High (uninsured)

risk• Asymmetric

information

Identify why there is a need for public intervention (the market failure)

Page 17: Smart specialization: opportunities and tools for iterative learning

What?Question/Goal

• Increase R&D Commercialization

Target group

• Public research

Market Failure

• Lack of early stage financing

Market failure critical assessment

• Intangible collateral

• Asymmetric information

What intervention can overcome this market failure?

Page 18: Smart specialization: opportunities and tools for iterative learning

And experimentQuestion/Goal

• Increase R&D Commercialization

Target group

• Public research

Market failure critical assessment

• Intangible collateral

• Asymmetric information

Intervention design

• Early stage financing

With alternative instruments to learn and adapt

Page 19: Smart specialization: opportunities and tools for iterative learning

An iterative RIS3 framework: Actionable and evidence-based

Question/Goal

• Selection/picking

• R&D promotion

• Commercialization

• …

Target group

• Entrepreneurs• Researchers /

academics• Public/private

Institutions• Venture

capitalists• Angel investors• Banks• …Market failure

critical assessment

• Eg. lack of credit: • Why?• Intangible

collateral• High

(uninsured) risk

• Asymmetric information

• …

Intervention design

• Matching grant• Tax break• Scholarships• Investment climate

reforms• Networking events• Academic

incentives (financial and non-financial)

• Guaranteed loans

Page 20: Smart specialization: opportunities and tools for iterative learning

Bringing it back to measurable goals

Goal Bottleneck Instruments Measure of success

Incentivizing R&D expenditure

FinancingIncentives

Alternative credit linesMatching grants

# firms engaged in innovation; proportion of spend on R&D

Accelerate R&D commercialization

Business skills (academia)Early Stage Financing

Entrepreneurial trainingAngel investors

Licensing of spin off companies; patents

Improve technology adoption by SMEs

AwarenessSkills

Information campaignsTraining Programs

Take up rates of targeted technologies;

Research Excellence

Retention of skilled labor forceCoordination / collaboration

Non-financial incentive schemesWorkshops / international conferences

Academic qualifications; Quality of publication output; Publication collaborations

Page 21: Smart specialization: opportunities and tools for iterative learning

Developing a flexible RIS3

---------------------

Determine measurable goals

---------------------

Identify bottlenecks and market failures

---------------------

Experiment, learn, adapt

Page 22: Smart specialization: opportunities and tools for iterative learning

A practical guide to real time impact evaluation and experimentation Identify bottlenecks to determine

possible interventions to be testedPut down hypotheses for the

bottlenecksBut how can we rigorously test which

interventions work best?

Page 23: Smart specialization: opportunities and tools for iterative learning

Monitoring vs. impact evaluation

Monitoring•Collects data on treatment groups to:•Track performance over time•Tell us whether we’re moving in the right direction

•Describes what is happening, but not why or whether this is because of our intervention

Impact Evaluation

•Assigns intervention to treatment and control groups to:•Measure counterfactual: what would have happened?•Establish causal link between intervention and outcome: if-then

•So we can measure impact of policy and compare instruments and pick better to improve policy over time

Page 24: Smart specialization: opportunities and tools for iterative learning

Why impact evaluation?

Public investment to focus on changes not levels Targeting areas that would have done just as well

even without public support misses the point Public funds to be used to catalyze growth or

improvements that would not have occurred through market forces alone

So, just seeing improvements related to investments is not enough

We need to know what would have happened if the support had not been provided

This can improve public resource allocation

Page 25: Smart specialization: opportunities and tools for iterative learning

Treatmentgroup

Before After

Treatmentgroup

According to monitoring, the amount of R&D diminished: the intervention had a negative effect?

Use the right tools to get the right answers

Let’s look at R&D investment before and after the intervention.

Page 26: Smart specialization: opportunities and tools for iterative learning

Treatmentgroup

Before After

Treatmentgroup

Control group

Impact of the intervention

Control group

Recession

According to evaluation, the intervention had a positive effect: without it, R&D reduction would have been larger!

Use the right tools to get the right answers

Let’s look at R&D investment before and after the intervention.

Page 27: Smart specialization: opportunities and tools for iterative learning

Treatment 1group

Before After

Treatment 1group

Control group

Compare impact

Control group

Treatment 2 has a larger effect

Use them to learn (compare alternatives)

Compare the impact of different mechanisms before and after the intervention.

Treatment 2group

Treatment 2group

Page 28: Smart specialization: opportunities and tools for iterative learning

How can impact evaluation help?We are fairly clear on the WHAT is

needed but not on the HOW to provide it

Use what we already know to improve policy design IE evidence points to behavioral

mechanisms that are common across sectors—need to operationalize evidence in the specific context

Identify and learn how to make it work Careful critical thinking on what you

need to know to take better decisions in the future

Page 29: Smart specialization: opportunities and tools for iterative learning

People …

forget, remind them text messaging

procrastinate, give them deadlines announce one time calls for matching grants

shy away from choosing, provide default options default sign up in training, incentive schemes

say they will but won’t, pre-commit them precommitment for investments

Use what we know from behavioral finance

Page 30: Smart specialization: opportunities and tools for iterative learning

401(k) Default increase take up

Before After40%45%50%55%60%65%70%75%80%85%90%

ControlTreatment

[Madrian and Shea, 2001]

Page 31: Smart specialization: opportunities and tools for iterative learning

Deadlines increase matching grant applications

Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Week 8

0

10

20

30

40

50

60

70

Applications

DEA

DLI

NE

Page 32: Smart specialization: opportunities and tools for iterative learning

Public recognition may be more powerful than financial incentives

Contro

l

Small

finan

cial

Large

finan

cial

Non-fin

ancia

l468

10121416

Sales

[Ashraf et al., 2011]

Page 33: Smart specialization: opportunities and tools for iterative learning

Precommitment increases investment & technology adoption

Farmers offered precommitment savings accounts increase: Land under cultivation by 10% Agricultural inputs by 26% Crop output by 22%

Brune, Gine, Golberg, Yang (2011)

Page 34: Smart specialization: opportunities and tools for iterative learning

And think about what else we need to learn

What information and incentives will facilitate academia-private sector partnerships?

What level of technical assistance is needed to turn start ups into viable businesses?

Is finance more important than technical support?

And test it…

Page 35: Smart specialization: opportunities and tools for iterative learning

Testing what?

Page 36: Smart specialization: opportunities and tools for iterative learning

Promoting public-private sector collaborationPublic funding for R&D

Provided to private sector

Conditional on public sector partnership

Unconditional

Provided to public research organizations

Conditional on private sector partnership

Unconditional

Page 37: Smart specialization: opportunities and tools for iterative learning

Researchers’ incentives to commercialize

Incentive and information to researchers

Mentoring and networking

Intensive support

General information

No information

Page 38: Smart specialization: opportunities and tools for iterative learning

Maximizing quality of technological solution

Public funding Global competition (innoCentive)

National competition

Page 39: Smart specialization: opportunities and tools for iterative learning

Mimicking angel investor: technical support

Grantee assistance

Training on development and marketing

Pseudo-angel investor support

Angel investor hired

Angel invest portion of funds/own time

Page 40: Smart specialization: opportunities and tools for iterative learning

Mimicking venture investor: addressing incomplete information

Grant for proof of concept

Early stage tech dev by selection committee (70% match)

Prototype by selection committee (70% match)

Prototype by market test (ranking by highest private match)

Early stage tech dev by market test (ranking by highest private match)

Prototype by market test (ranking by highest private match)

Page 41: Smart specialization: opportunities and tools for iterative learning

Train and design

evaluation of programs at

scale

Large research teams

Networks of policy-makers

develop communities of practice

Regular IE thematic events

Experiments to test possible

solutions

generate local knowledge

Find and adopt solution

Identify regularities

Use networks to discuss

results

Stimulate policy-makers

to consider adoption

expand global policy adoption

DIME support

Page 42: Smart specialization: opportunities and tools for iterative learning

Task

Starting from your goals, identify Implementation and behavioral issues Possible instruments and mechanisms 3-4 ideas about possible things to test in

your strategy