The Economist talks about the attempt to bring entrepreneurship back into economic theory. I would think that there is a role for innovation in the competitive struggle for product differentiation and for cost reduction. This is part of the struggle to move from a competitive situation towards one where there is market power.
Economics focus: "William Baumol, who holds positions at both Princeton and NYU, has been labouring for years to create more space for entrepreneurship and innovation in economic theory. At this year's annual meeting of the American Economics Association, three special sessions on entrepreneurship were held in his name*. Mr Baumol's work in turn pays homage to the insights of Joseph Schumpeter, for whom the settled equilibria and smooth adjustments of microeconomics held little interest"
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