Evaluation of Potential of Innovations: A DEA-Based Application to U.S. Photovoltaic Industry

We present a model-based approach for evaluating the potential of innovations occurring in various stages of the industry value chain. The realization of the innovation´s potential is conceptualized as the ability of the de novo firm to achieve the maximum possible efficiency in translating inputs into cost-reducing output. We apply recent developments from data envelopment analysis to measure the innovation´s potential in terms of its relative efficiency with respect to a best practices frontier. We then present a conceptual framework to classify and identify the determinants related to technological and organizational variables in realizing the potential of innovations. Finally, we demonstrate the application of this model-based approach to conduct analysis of the potential of innovations in the U.S. photovoltaic and related systems manufacturing industry.