Long-run patterns in the discovery of the adjacent possible

Abstract

The notion of the "adjacent possible" has been advanced to theorize the generation of novelty across many different research domains. This study is an attempt to examine in what way the notion can be made empirically useful for innovation studies. A theoretical framework is construed based on the notion of innovation a search process of recombining knowledge to discover the "adjacent possible". The framework makes testable predictions about the rate of innovation, the distribution of innovations across organizations, and the rate of diversification or product portfolios. The empirical section examines how well this framework predicts long-run patterns of new product introductions in Sweden, 1908-2016 and examines the long-run evolution of the product space of Swedish organizations. The results suggest that, remarkably, the rate of innovation depends linearly on cumulative innovations, which explains advantages of incumbent firms, but excludes the emergence of "winner takes all" distributions. The results also suggest that the rate of development of new types of products follows "Heaps' law", where the share of new product types within organizations declines over time. The topology of the Swedish product space carries information about future product diversifications, suggesting that the adjacent possible is not altogether `"unprestatable".