Social Push and the Direction of Innovation

Abstract

Innovators' personal experience and social networks may affect their familiarity with customer needs, and in turn the types of products they bring to market. Consistent with this channel, we document that innovators create products that are more likely to be purchased by customers similar to them along observable dimensions including gender, age, and socio-economic status. With scanner data and a new phone applications database, we find that these homophily patterns hold even within detailed industries. Using quasi-random assignment of individuals to dorms during military service, we provide causal evidence that being exposed to peers from a lower income group increases an entrepreneur's propensity to create necessity products. The finding is similar with an alternative research design leveraging idiosyncratic within-school variation in peer composition across classes and cohorts. Because innovators are predominantly men from privileged backgrounds, the social push channel implies that the gains from innovation are unequally distributed across customer groups, which we quantify in a growth model.