Nicholas Bloom and Josh Lerner, co-directors.

• Position: Company overview

[The following Program Report, the most recent on this program, appeared in the 2013 Number 3 issue of the NBER Reporter.]

The Productivity, Innovation and Entrepreneurship Program was founded as the Productivity Program, with Zvi Griliches as the inaugural program director, in 1978. It has more recently expanded to incorporate the vibrant and growing body of research in the affiliated fields of innovation and entrepreneurship. The program benefitted tremendously from Griliches' inspirational leadership, continued by Ernst Berndt after Zvi's untimely death in 1999. We have had the privilege of co-directing the program since 2011.

The program has generated a remarkable volume of research activity. It currently has 90 active members, and the program's cumulative output includes more than 1350 affiliated working papers on a wide range of topics. The activities of the program are organized into four large project areas. These are: economic research on the measurement and drivers of productivity growth; entrepreneurship, which focuses on the measurement, causes and effects of new business creation; innovation, which examines R&D, patenting and creative activities; and digitization, a recently-launched project area, which focuses on the creation, use and impact of digital information. This review summarizes the research in each of these four areas.

Economic Research on Productivity

As Paul Krugman famously quipped, "Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker." (1) Rising productivity has been the key to American growth over the last two centuries and will be the key to improving the lives of many millions in the developing world. Even in the recent recession, there has been an active and ongoing debate about the long-term potential growth rate of U.S. output. Understanding productivity growth is a central topic in economics, and one that naturally overlaps with many other NBER programs.

The research by program affiliates displays a strong emphasis on the roles of research and development, patents, incentive systems, regulations, technological progress and organizational form in influencing the extent and nature of productivity growth. In addition, the PRIE Program has long had a sharp focus on economic measurement, including inputs, outputs, prices, quality change, and multifactor productivity, that has been led in particular by the Conference on Research on Income and Wealth (CRIW). Activities on the broad subject of productivity center on spring and summer research meetings. These meetings allow program members to present work in progress on a variety of productivity topics. The summer meetings are split into sessions that focus on macroeconomic aspects of productivity, and on productivity issues in developing countries. Given the breadth of program's research, we can highlight only a few examples of the research issues that program members explore.

One strand of research revolves around the productivity and performance of healthcare. For example, one recent study examines the traditional wisdom that market forces are weak in the healthcare sector, leading to a massive dispersion of performance across hospitals. (2) If poorly performing hospitals rarely close, there should exist a huge dispersion of performance. The paper finds that indeed while there is a large spread of performance across hospitals, surprisingly it is comparable to the extent of dispersion in other sectors like manufacturing and retail (3) Moreover, much like manufacturing, the healthcare sector shows a strong link between market share and productivity--high performing hospitals grow faster than other low performing hospitals, so that performance and size are strongly linked. The paper concludes the healthcare is far less of an exceptional industry than is commonly believed, looking in fact rather similar to sectors like manufacturing on certain market dimensions.

Another strand of the program focuses on the importance of micro and macro forces in driving aggregate productivity. Researchers often highlight two ways aggregate productivity can rise: firstly there is the reallocation "batting average" effect, whereby if more productive firms expand and less productive firms contract, then average productivity rises. (4) The second is the macro "rising tide" effect, whereby if innovation and development increase the productivity of every firm, aggregate productivity also rises. One recent paper on this topic investigated the role of adjustment costs and volatility in explaining the dispersion and average of productivity across over 30 developing countries. (5) The authors found striking evidence that low productivity in developing countries may be the result of extremely volatile micro-productivity of firms, making it hard for market forces to reallocate output appropriately. This highlights how removing distortions and adjustment costs, as well as reducing market turbulence and uncertainty, can aid...