This chapter elaborates the notion of innovation as the outcome of creative responses made possible by the quality of knowledge externalities available in the system. As such the introduction of innovations can be analysed as an emerging property of complex system dynamics. The chapter presents an agent-based simulation model (ABM) of an economy where systemic knowledge interactions among heterogeneous agents are crucial for the recombinant generation of new technological knowledge and the introduction of innovations. In this approach the system’s organization plays a crucial role in assessing the chances of individual firms actually introducing innovations because it qualifies access to external knowledge, an indispensable input, together with internal learning and research, in the generation of new knowledge. The introduction of innovations is analysed as the result of systemic knowledge interactions among myopic agents credited with an extended procedural rationality that includes forms of creative reaction. The agents’ creative reaction may lead to the introduction of productivity enhancing innovations. This takes place only when the structural, organizational and institutional characteristics of the system are such that agents, reacting to out-of-equilibrium conditions, can actually take advantage of external knowledge available within the innovation system in which they are embedded to generate new technological knowledge. The ABM enables us to explore the effects of alternative organizational features, namely different configurations of intellectual property rights regimes and architectural configurations of regional structures in which knowledge interactions take place, on rates of technological innovation. The results suggest that the dissemination of knowledge favours the emergence of creative reactions, and hence faster introduction of technological innovations.
