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Methodology, Agent-based computational economics, Simulation models, Empirical validation, Calibration, History-friendly modeling, B41, B52, C63,

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We have witnessed a dramatic transformation of the USA and western European economies in just twenty years. Built on manufacturing, today these are indubitably services-based economies. The transformation raises a number of important issues for economists, and for evolutionary economists in particular for they have long highlighted the importance of innovation and structural change in their treatment of industrial organisation, employment creation, welfare, economic growth, and international trade. Our understanding of the innovation process, and its economic implications, were built on studies of manufacturing sectors. What needs to be changed? Are some theories and models no longer applicable? Do we need to develop new explanations, theories and models? Is innovation in service sectors fundamentally different to innovation in manufacturing sectors, or is there a set of common features? These are key questions that are now being asked.We suggest that, by studying services innovation, scholars of innovation have an opportunity to develop an integrated account of innovation that is applicable to both services and manufacturing, and which covers all aspects of the innovative process. This requires a reassessment of established theories and models, and the development and testing of new theories and models. In other words, it requires a thorough review of what (we think) we know about innovation.

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The paper investigates the direction of knowledge flows and, more generally, the pattern of open innovation that is taking place within services across Europe. Using the Eurostat Fourth Community Innovation Survey (CIS4) dataset, on 17 service sectors across 18 countries, we find significant differences between service innovation leaders and followers. Key findings are that a concentration of radical innovation is to be found mainly in knowledge-intensive research and development sectors; that leading innovators across all sectors tend to use intellectual property rights to protect their ideas; and that leading service innovators engage in international sales. We do not find evidence that external sources of information acquisition are significant in radical service product innovation. By contrast, innovation followers rely more extensively on external sourcing of knowledge and new ideas (with decreasing returns to innovation performance), and tend not to export. These findings contribute significantly to our understanding of the knowledge flows and the asymmetries in knowledge sharing in service sectors across Europe.

This paper puts forward a framework for understanding the relationship between service industries and social innovation. These are two, previously disconnected research areas. The paper explores ways in which innovation in services is increasingly becoming one of social innovation (in terms of social goals, social means, social roles and multi-agent provision) and how social innovation can be understood from a service innovation perspective. A taxonomy is proposed based on the mix between innovation nature and the locus of co-production. The paper additionally puts forward a theoretical framework for understanding social innovation in services, where the co-creation of innovation is the result of an interaction of competences and preferences of multiple providers, users/citizens, and policy makers. This provides the basis for a discussion of key avenues for future research in theory, measurement, organisation, appropriation, performance measurement, and public policy. This provides a context for the papers presented in this special issue.