The coordination of agricultural R&D in the U.S. and Germany: Markets versus networks

Making money out of knowledge is a more difficult venture than it might seem due to defining characteristics of knowledge: non-rivalry and non-excludability in consumption. We argue that institutional attempts to overcome this difficulty in knowledge commodification shape the type of technological innovation in an economy. We suggest that two coordination types of R&D can be found: coordination by the market and coordination by networks. Empirically, our analysis is based on a mixed methods approach. We combine qualitative interviews with employees of seed companies in the U.S. and Germany, historical records, and descriptive quantitative analysis of yield developments in several crops. Finally, we compare market concentration in the U.S. and Germany. Our results indicate that coordination of agricultural R&D by the market (as in the U.S. since the 1980s) fosters innovations that are based on explicit knowledge. Furthermore, coordination by the market privileges large companies, tends to lead to a strong market concentration, and limits the development efforts on a few commercially beneficial crops. Coordination of agricultural R&D by networks (as in Germany), on the other hand, fosters innovations that are based on implicit knowledge and privileges medium-sized handcraft-based companies, which maintain innovation activities in a larger spectrum of crops. We conclude that the ban of transgenic seed in Europe cannot only be explained by the consumer protest but might also root in the institutional structure that coordinates agricultural R&D.