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High-tech Clusters, Technology Spillovers and Trade Secret Laws

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AbstractWe analyze firms’ incentives to cluster in an industrial district to benefit fromreciprocal technology spillovers. A simple model of cumulative innovation is presentedwhere technology spillovers arise endogenously through labor mobility. It isshown that firms’ incentives to cluster are the strongest when the following threeconditions are met: 1) technological progress is rapid; 2) competition in the productmarket is relatively soft; 3) the probability of a single firm to develop an innovationis neither very high nor very low. We show that some trade secret protection is alwaysbeneficial for firms’ profits and stimulates clustering. Excessive protection mayimpede technology spillovers and reduce firms’ incentives to cluster.JEL Codes: J3, K2, L1, O32, O34.Keywords: Cumulative innovation, industrial districts, intellectual property rights,technology spillovers.

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Andrea Fosfuri, Thomas Røende

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