2010

Technological Innovation and the Importance of Economies of Agglomeration and Modular Design
Stimulating Distributed Open Innovation Networks within the Central Appalachian Region

J. Eric Mathis The JOBS Project 1/1/2011

Abstract: Within the Central Appalachian region, rural communities are challenged by their low population density, less advanced technology activities, and lower innovative capacity. Stimulating technological innovation requires that the rural infrastructure includes roads, waterways, power grids, institutional structures and networks that are tied to a central nucleus, acting as an incubator for new ideas that draw on collective resources. Collaborations between formal organizations (nonprofit organizations, research and development (R&D) firms, renewable energy (RE) companies) and informal groups (energy generation employees, community stakeholders) can combine knowledge to guide development in the RE sector, promoting openness and diminishing the limitations of regional isolation. With this collaborative model, a primary driver of technological innovation is connecting the lived experiences of employees to the R&D processes of technology development. The employees firsthand knowledge of the RE production processes (e.g., operation and maintenance) can provide valuable insight for improving those technologies. In turn, this structure stimulates solutions-based thinking by connecting the experiences or tacit knowledge of the RE employees with the developers and manufacturers. An open forum for employee and community stakeholder feedback can help to push forward thinking within the economically disadvantaged and mountainous regions found in the coal dependent counties of Central Appalachia. The employees can become a central part to these rural innovation clusters throughout the life cycle of a particular RE project. These informal networks of experienced employees can effectively stimulate technological innovation, in turn drawing industry into the Central Appalachian region. Keywords: Economies of Scale; Economies of Agglomeration; Modular Design; Endogenous Growth Model; Neo-Economic Growth Model; Sustainable Development; Technological Evolution; Tacit Knowledge; Open Innovation

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1 Introduction Adam Smith identified the division of labor and specialization as the two key means to achieve larger financial returns on production. Through specialization, employees would not only be able to focus on specific tasks, but would, with time, improve the skills necessary to perform tasks. Tasks performed better and faster lead to increased production levels. While Adam Smith describes a model for increased efficiency through economies of scale, he does not account for the efficiencies present in distributed open innovation networks and their ability to stimulate technological innovation, specifically the efficiencies associated with economies of agglomeration. This paper is explicitly about the economic benefits of technological innovation; our primary concern is to highlight the benefits of innovation in relation to entrepreneurship and the strength of institutions (i.e., an endogenous growth model) as opposed to the reverse, stimulating market flows on the level of price (i.e., neo-classical growth model), with technological innovation acting as a secondary condition for maintaining a thriving market. Limitations of the neo-classical model include its failure to take account of entrepreneurship (which may be catalyst behind economic growth) and the strength of institutions (which facilitate economic growth). In addition, it does not explain how or why technological progress occurs. These limitations have led to the development of endogenous growth theory, which develops technological progress and/or knowledge accumulation internally. Unlike previous classical models of economic development, the endogenous growth model does not see technology as a given, but as a product of economic activity; additionally, endogenous growth theory holds that growth is due to the increasing returns characterized by knowledge and technology as opposed to the diminishing returns characterized by physical capital (Cortright, 2001). We wish to expand upon the endogenous model by situating its knowledge/technology nexus within a model of sustainable development that we believe accounts for the limited nature of this nexus. In this framework, knowledge would be viewed much like technology; technological development exists in the endogenous growth model as a primary driver of economic growth, and its novel development emerges from within a network of related industry actors. Therefore, we also view knowledge development as a primary driver of economic growth, and similar to technological advances, we view knowledge development as being made possible by a supporting network of previously specified tacit as well as codified knowledges. This nexus is based on the assumption that knowledge and technology can be infinitely shared and reused, that is, we can accumulate knowledge and technology without limit, and therefore they are not subject to the law of diminishing returns. Simply put, Joseph Cortright explains, One special aspect of knowledge makes it critical to growth. Knowledge is subject to increasing returns because it is a non-rival good (Cortright, 2001). This is simply not the case if one accounts for the material transactions or informal processes that are involved while producing a particular type of knowledge and/or technology. For example, the materials needed to transport a research scientist to her/his job on a day-to-day basis can be seen as one of many possible transaction costs. By utilizing sustainable development,
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we believe that one can begin to supplement the limited nature of the knowledge/technology nexus - when situated solely within the endogenous growth model - by contexualizing its production within a reflexive development model which accounts for the inherent limitations found in any material system. For example, by adopting an open innovation model, regional R&D firms can reduce various transaction costs that are typically associated with the traditional closed innovation model. We will discuss this in further detail in section 3. This theory, along with an emphasis on sustainable development, will help us negotiate development within Central Appalachia by synthesizing a resource-based economy with a knowledge-based economy. This approach underscores the point that the economic processes that create and diffuse new knowledge are critical to shaping the growth of urban and rural communities and individual firms. In this light, it is important to consider that we should be reassessing the importance of institutions as providers of a framework for growth (Cortright, 2001). One way we can reconceptualize institutions in this manner is to view them as actors to minimize unwarranted technological lock-in or path dependence. Technological lock-ins occurs because of technical interrelatedness, economies of scale, and the quasi-irreversibility of innovation and development (David, 1985). As such, lock-in occurs both in merited and unmerited situations; in the case of lock-in of particular, inefficient technologies and arrangements it is not necessary for market forces to automatically correct these inefficient outcomes. Additionally, while lock-ins typically refers to the routine adherence to one particular physical piece of technology, the same routine adherence can be seen on a larger economic level. Some economic theorists see economic actors, such as business firms and managers, as creatures of routine they follow certain successful beliefs and behaviors and only change when their routines fail to work (Cortright, 2001). Therefore an alternative method of correcting inefficiencies due to lock-ins and industrial routine is needed; if institutions were utilized to decrease the occurrence of these inefficiencies, there would be room for additional innovation and, in turn, sustainable economic development. The open innovation model is essential for achieving sustainable innovation. Generally, economists are understood as experts in conceptualizing flows of capital and quantifying these flows in terms of price. This paper poses an alternative and equally valid model, one that considers price as well as the positive feedbacks of open innovation in relation to a particular technologys ability to remain competitive in the market. Within this model, businesses are understood as being competitive according to their ability to remain flexible and creative in order to meet market demands, while also remaining competitive on the level of price as well as encouraging sustainable economic growth. It is the assumption of the development models presented in this paper, and promoted by the JOBS Project, that Central Appalachian communities who actively promote the rural area as one rich in natural, cultural, and human assets will typically foster increased investment into their region. These same strategies which engage local residents and RE employees in economic development help to increase entrepreneurship, improve education, and provide rural communities with a unique
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means of capitalizing on advanced RE technologies, better enabling their ability to take part in Americas energy transition. Moreover, RE technologies have the added ability to bolster many related industrial sectors thus providing an even larger, macroeconomic platform of broad-based technological innovation leading to economic growth; a recent publication sponsored by the Ford Foundation stated that: Green products, in particular, are proving to be highly convergent, as they become the defining characteristic of firms, for example in architecture, processed foods, building materials, construction, design, and consumer electronics companies. Food processing converges with energy in areas such as biomass, bio-fuels, and ethanol; pulp and paper converge with biochemistry, bio-refining, and biomass power generation; waste recycling converges with energy, oil, cement, plasterboard, biotechnology, and aquaculture all in industrial symbiosis clusters (Regional Technical Strategies, Inc., 2009). The following sections are an overview of the development model presented in this paper as well as instituted by the JOBS Project throughout the Central Appalachian region. The structure of this paper is as follows: Section 1 focuses on the historical roots of innovation which apply the theory of technological evolution to various historical periods where knowledge emerged within a complex network of social interactions. Section 2 is a market analysis of both economies of scale and agglomeration and their prospective relationship to either discouraging or encouraging technological innovation. Section 3 attempts to locate sources of open innovation by analyzing network affects. This section ends with a conceptual framework of distributed open innovation networks which situates localized integration within both a modular design and an agglomerated manufacturing setting. Section 4 proposes an emergent endogenous growth model to enliven economic diversity within the Central Appalachian region. Lastly, section 5 presents a case study which contextualizes the previous sections into a real world model, a 400-700kW pyrolysis facility in Southern West Virginia. This project is presently in the predevelopment stages.

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2 Historical Roots of Innovation Historically, economies of scale were carried upward and onward on the shoulders of small firms and the enormous creative powers of the market, of the lower story of exchange... This lowest level, not being paralyzed by the size of its plant or organization, is the one readiest to adapt; it is the seed bed of inspiration, improvisation and even innovation, although its most brilliant discoveries sooner or later fall into the hands of the holders of capital. It was not the capitalists who brought about the first cotton revolution; all the new ideas came from enterprising small businesses, Fernand Braudel, a French historian and a founder of the Annales School, goes on to ask, are things so very different today? One of the leading representatives of French capital said to me the other day: It is never the inventors who make a fortune; they have to hand it over to someone else (Braudel, 1979). The history of innovation can be seen in the same light, that is, most creative phenomena, whether technological or scientific in nature, are typically produced by clusters of small institutions or producers of a certain good by reducing the barriers of communication which are most often found in larger institutions. Generally, the history of innovation privileges the innovative "hero" without accounting for the collective nature of why and how the particular innovation emerged. The purpose of this section is to provide a broader historical perspective of how and why innovation emerges and some of the primary mechanisms of which inhibit its emergence in order to develop a historical framework for understanding open innovation and its importance for economic growth. This broad analysis of technological innovation is informed by George Basallas work entitled The Evolution of Technology who cites Samuel Butler (1863) as one of the first to begin analyzing the emergence of technology as an evolutionary process where machines developed in a fashion remarkably similar to the evolution of living beings (Basalla, 1988: 15). In order to support his thesis of novelty where the creative phenomenon is productive as opposed to imitative Basalla utilizes Herbert Spencers assertion that the entire history of innovation is fundamentally connected to a continuum from simple to complex, that is, a movement from the homogeneous to the heterogeneous. From Butlers evolutionary analogy and Spencers continuum, Basalla constructs an expansion of the revolutionary model predicated upon discontinuous historical breaks or paradigm shifts for understanding technological change. Basalla presents an alternative model of cumulative change where major inventions resulted from the cumulative synthesis of a series of minor ones. From Basallas evolutionary model of technological change, this paper will emphasize the continual breaking down of technology into constituent parts and then reassembling these parts in a new and creative way. In most cases these novel combinations will have the emergent phenomenon of utility, that is, to provide an answer to a particular problem that person(s) or institutions are trying to resolve.

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Using Braudels example of the cotton revolution, Eli Whitneys cotton gin did not spontaneously emerge within a technological vacuum. To the contrary, it emerged in a complex network of social interactions, novel objects and specific environmental conditions where preexisting technologies, such as the Indian gin or charka, provided a method of approaching the problem that Whitney was trying to resolve. The charka provided a means for cleaning long staple cotton but did not provide a solution for cleaning short staple cotton. Within this complex network, Whitney was provided several approaches to cleaning long staple cotton and then adapted those methods to the environmental conditions presented by short staple cotton. In this model, the inventor(s) is provided a complex body of novel artifacts which are then assembled in order to resolve a particular problem presented by the surrounding environment (Basalla, 1988). To further elucidate this complex network, Basalla breaks down continuity as the mechanism that produces diversity and from this large body of novel objects the inventor(s), through a process of selection, conceptually redistributes these novel objects in order to recombine them in hopes of meeting fundamental human needs (Basalla, 1988: 25). For example, in the case of Francis Bacons production of scientific thought, the continuity was found outside the universities in the mechanical arts where diversity flourished and had in them some breath of life, which were continually growing (Bacon, 1960). During this time, Descartes also attributed crafts knowledge as the fertile grounds of diversity from which selection occurs. He suggested a survey of those arts of less importance; that is, those which are easiest and simplest, and those above all in which order most prevails. Such are the arts of the craftsmen who weave webs and tapestry, or of women who embroider or use in the same work threads with infinite modification of texture (Descartes, 1996). This complex network of innovation can be further expanded as developing a relationship with the environmental conditions that the inventor or perhaps more appropriately, group of inventors experience in their everyday lives. For example, according to historian Edgar Zilsel, experimentalism did not arise from Galileos defiance of Aristotelian science or Francis Bacons championing of inductive logic. Zilsel states that the experimental method did not and could not have descended from the metaphysical ideas of the natural philosophers." According to Zilsel, modern science arose in early modern Europe through the interaction of artisans and elite intellectuals within their environments. Moreover, this network of communication with environmental conditions provided the raw material for scientific experimentation where the artisans, the mariners, shipbuilders, carpenters, foundry men, and miners were the real pioneers of empirical observation, experimentation, and casual research (Zilsel, 1942: 12-15). This emphasis upon the complex network of artisan knowledge was expanded by Paracelsus, often considered the Martin Luther of medicinal practices and a rival of Francis Bacons model of utilizing craft knowledge without crediting the source of which the knowledge emerged. Bacon responded to Paracelsuss model of emphasizing an unmediated experience with nature by drawing comparisons between his adoration of the artisanal understandings of the material world with that of the radical reformers
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who attacked established authority in the name of social justice and equality. Bacon went on to say that from these types of attacks, it inspired German peasants to rise up against rural priests and landlords in the great Peasants Revolt of 1525 (Jacob, 1998: 27). Similar revolts - or more appropriately, evolutionary changes - occurred in recent history and this reorganization of complexity gave rise to what is quite possibly one of the most important inventions of the modern era, the digital computer. The digital computer was a by-product of the Cold War and hence they were designed and utilized solely by the military and later adopted by large, centralized firms for highly specialized tasks. In the 1970s, these sluggish, large and profoundly inefficient machines began interacting with the complex network of self taught amateur electronics hobbyists and eventually gave rise to the Altair 8800. This device, along with its interactions with the complex network of newly emerging electronic hobbyists, uncovered the profound inefficiencies which were found in the computers that were produced by IBM, Wang, UNIVAC, and Control Data Corporation. Among some of these hobbyists were Bill Gates, Paul Allen, and Monte Davidoff who began developing the coded programs that the Altair needed to function. From these programs they developed the first personal computer which sparked the technological explosion in the 1980s. Moreover, the historian of computing, Steve Lohr, claimed that programmers are the artisans, craftsmen, bricklayers, and architects of the Information Age (Lohr, 2001: 7). These complex networks of programmers later gave rise to an alternative to Bill Gates brainchild, Microsoft. Among some of these agents of complexity were Ted Nelson, Richard Stallman and Bob Albrecht who believed that the wellspring of technological innovation is and has always been a commitment to an open source approach which ensures that ideas propagate fast to new products. W. Brian Arthur, a contemporary evolutionary economist, views systems of order, closedness, and equilibrium as ways of organizing technologies and that economies are giving way to open-endedness, indeterminancy, and the emergence of perpetual novelty (Arthur, 2009: 211). Additionally, in regards to the necessity of an open source approach to economic development, Cortright says that, the non-rival quality of ideas is the attribute that drives economic growth. We can all share and reuse ideas at zero, or nearly zero cost. As we accumulate more and more ideas, knowledge about how the world works, and how to extract greater use out of the finite set of resources with which the world is endowed, we enable the economy to develop further (Cortright, 2001: 6). As such, knowledge acts as a catalyst for economic growth via technological innovation. In this vein, increased technological innovation, and therefore increased economic growth can be expected when knowledge is allowed to freely traverse between individuals and institutions. However, Cortright also clarifies that under the current neo-classical model of economic development, patents, trademarks, and copyright law allow individuals to have certain rights to exclude others from the benefits of the ideas they have created. Keeping ideas secret trade secrets, confidential business information also allows their owner to exclude others from their benefits (Cortright, 2001: 5). Therefore, in order to promote the most widespread exchange of knowledge it is necessary to reevaluate
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the method of intellectual property right ownership and development; these reevaluations can come in the form of creating industrial relationships based on free exchange of open source technology. Other methods for dealing with the problem of hard-line intellectual property ownership models include reformatting the current model of inclusion and ownership of patents; the subject of patent structure and inclusion of participants is discussed in more detail in Section 4. Not only does an open source approach foster innovation within various processes of program development, it can also prompt technological change through modular design and perhaps more importantly by situating these design approaches within a network of manufacturing clusters. That is, an agglomeration of small entrepreneurs can stimulate innovation as well as redistribute the overall R&D processes; thus, increasing the occurrence of innovation spillovers. Using the same focal point of the open source design above, the Altair 8800 incorporated a number of open slots that allowed for additional memory and other devices to be added if the consumer so desired. This open design was later adopted by the Apple II and then radically upgraded by IBM. IBM, in a bold move, adopted an assembler role and externalized all the PC components within individual competing markets (e.g., processor, hard drive, key board, mouse, etc.). This caused a positive feedback on the level of technological change as well as the institutional make-up of the computer industry. Perhaps the best motive for supporting modular design is found in the effects that it has on the institutional structure of a particular industry. A 2000 study, performed by two Harvard scholars, found an institutional tendency towards heterogeneity within the computer industry and correlated this to the industrys decision to adopt modularization as an industry standard. Figure 1 (right) elucidates this institutional tendency of moving from a highly homogenous industry, with IBM acting as the dominant firm in 1969 (where 71% of the market value of the computer industry was tied up in IBM stock) to a heterogeneous industry by 1996 where no firm accounted for more than 15% of the total value of the industry (Baldwin & Clark, 2002).

Figure 1 Market Value of the Computer Industry by Sector, 1950-1996 in Constant US Dollars

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By combining these histories of continuity from the simple to the complex or a movement from the homogeneous to the heterogeneous we can begin to see the importance of agglomeration and modular design for prompting technological change and the expansion of the RE industry within Central Appalachia. Additionally, in regards to the development of the RE industry, we see that new growth theory implies, however, that we continue to increase living standards for centuries to come by steadily improving our knowledge of how to produce more and better goods and services with ever-smaller amounts of physical resources (Cortright, 2001: 6). The following section will compare various attributes of two growth models in hopes of steering federal policies and funding in the direction of demonstrative economic benefits without falling into the pitfalls of archaic growth models that have done little more than subsidize a noncompetitive environment as opposed to stimulating one.

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3 Market Analysis of Scale vs. Agglomeration In order to contextualize the previous section we will look at the particular economic attributes of economies of scale as well as agglomeration. This section seeks to provide a snapshot of the two developmental approaches by juxtaposing both models in relation to technological innovation. By comparing the economies of scale model representing the neo-classical growth model to the economies of agglomeration model representing an endogenous growth theory or new growth theory we can better understand how each model either stimulates or discourages innovation. The model of economies of scale emphasizes stimulating growth through increasing productivity, which is essentially a homogenous model. Alternatively, the endogenous growth model represents a heterogeneous model holding that policy measures can have an impact on the long-run growth rate of an economy. For example, federal and state subsidies for R&D or education may increase the growth rate by increasing the incentive to innovate. The primary issue in this section is to address why specific development theories differ in their ability to generate, imitate or apply new variety, and to identify the economic and institutional structures through which the Central Appalachian region can retain and even expand its competitive position in national and international markets. Based on neo-classical economic theories the contemporary understanding of innovation assumes that it emerges from the economic concept of an economy of scale (ES); as such, this will be the first term that is defined. An ES occurs when an increased number of units a good or a service can be produced on a larger scale, yet with, on average, lessening input costs. Alternatively, this means that as production increases for a particular firm the overall costs of per-unit production decreases. This occurs on all levels of the firm by internalizing transaction cost, as well as the means of producing a particular good or service. For Manuel DeLanda, a contemporary emergent theorist, this signifies a tipping point where the once heterogeneous processes of producing goods comes under the control of a homogeneous, routinizing firm that constrains technological innovation rather than stimulating it. According to the ES model, innovation can only occur due to a centralized R&D atmosphere realized within the economy of scale mainly taking the form of ownership of codified knowledge in the form of patents. However, there clearly are many viable alternative models for understanding innovation and technological progress, and as such it is inherently limiting to only view innovation through the scope of an ES. Additionally, there are other viable alternative models for new forms of knowledge ownership ranging from distributed patent structures to complete open sourcing of all innovative breakthroughs. Moreover, much of the competition for industry
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shares takes place during the convergence toward oligopoly. Once this convergence is realized, shares stabilize and technological innovation ceases (Lippman & Rumelt, 1982; Nelson & Winter, 1982; Klepper, 1996). In economic terms, an ES refers to a situation in which the average cost of producing an additional unit of output (marginal cost) of a product decreases as the volume of output (scale of production) increases (see above diagram).1 It can also be defined as a situation when an equal percentage increase in all inputs results in a greater percentage increase in output. This particular model assumes that innovation comes from centralized R&D laboratories, that is, marginal costs are captured in the R&D stages by way of increasing volume via increase in demand for a particular technology. This assumes the centralized R&D model as the norm whereas an economy of agglomeration would reduce the marginal cost that is captured in the R&D processes of technological innovation we will expand this further below. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit, here being the transaction cost of R&D. For example, if producing additional components for a particular RE technology requires extra investment into R&D, the marginal cost of those extra components includes the transaction cost of R&D. Further, the marginal cost invested in the input of R&D does not result in an increase of innovation in output, especially when one considers the alternative, an economy of agglomeration. Geographical economists use the concept of an economy of agglomeration (EA) to describe the benefits that producers obtain when locating close to other producers in a similar industry (see diagram).2 This concept is related to economies of scale and network effects, in that the more related companies that are clustered together, the lower the cost of production (e.g., firms have competing, multiple suppliers and greater specialization and division of labor result) and the greater the market that the firm can sell into by competing at the level of price. Additionally, geographic clustering of related industries also leads to a dramatic increase in knowledge spillovers due, again, to the non-rival and nature of knowledge (Cortright, 2001). In this lens, industrial clusters can be seen as interdependent firms representing various sectors that usually find themselves in a multi-county, county, or community-defined region (Regional Technical Strategies, Inc., 2009). As such,
1 2

The increase in output from Q to Q2 causes a decrease in the average cost of each unit from C to C1. Three activities (P,Q and R) having their respective locational constraints can benefit from agglomeration economies if they locate at A. The additional transport costs that may derive will be more than compensated by the cheaper functional linkages between the activities.

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clustering will result in economic growth and development simply because of geographic knowledge spillover; however, even more economic growth through innovation could be seen if open source approaches were incorporated within the geographic cluster. It is also important to note that the prevalence of tacit knowledge found within an employee is much different from codified knowledge that can be exchanged without regard to geographic location; for this reason geographic clustering is still an important means of knowledge spillover creation even in the face of increasingly sophisticated communication systems, like the internet. Cortright coyly explains the importance of noting the difference between tacit and codified knowledge by saying, Acknowledging the economic importance of tacit knowledge requires little more than admitting that it requires more than a good accent and a copy of LaRousse Gastronomique to operate a successful French restaurant (Cortright, 2001). As such, the need for openly exchanged information and tacit knowledge within a framework of geographically localized industrial clusters would lead to technological innovation and economic growth and development. Additionally, localized geographic clustering has the added advantage of being largely affected by regional variations in environment; these ecological niches are important to reinforcing the processes of trial and experimentation that drive economic growth (Maskell & Malmberg, 1999). However, geography and market incentives will not be enough to bolster industrial clustering alone. Institutions and initiatives will be needed in order to boost these industrial clusters either through specialization or association; specialization refers to the use of public or private sector resources, while association refers to the influence of relationships and increased interactions between firms (Regional Technical Strategies, Inc., 2009). Additionally, this report states that: Specialization affects business and technical assistance, research and development, market assistance and information, and often most importantly education and training, shaping it to the particular needs of the companies in the cluster. Association encourages and facilitates business networks and cluster-specific business associations by supporting facilitators and collaborative projects (Regional Technical Strategies, Inc., 2009). It is important to recognize that modern industrial clusters found in rural areas typically are borne out of company evolution, a pre-developed set of skills in the region, or as the result of a natural resource (Regional Technical Strategies, Inc., 2009). As such, these clusters are much more likely to emerge from within an economy of agglomeration than from an economy of scale. Quite simply, a top-down implementation approach that is found within economies of scale gives little to no room for novel conditions or relational networks to emerge. Moreover, the evolutionary nature of clusters implies that cluster strategies implemented comprehensively and from the top down are more likely to contribute to adverse lock-in effects than promote growth (Regional Technical Strategies, Inc., 2009). As such it is extremely important to not force unrelated industry on a particular area, but instead utilize the naturally occurring resources, or assets, of an area to their fullest potential. Along these lines, instead of recommending specific
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industry types, institutions can aid in the formation of industrial clusters by removing barriers from otherwise impenetrable markets. Even when multiple competing producers in the same sector cluster, there may be innovation advantages because the clustering attracts more R&D firms, suppliers and customers than a single producer could alone. Moreover, a 2005 study found that an EA had a positive effect upon the occurrence of technological innovation and perhaps more importantly on the emergence of small entrepreneurs (Acs & Varga, 2005). This type of infrastructure consists of sources of knowledge: networks of firms that provide expertise and technical knowledge; concentrations of R&D that enhance opportunities for innovation by providing knowledge of new scientific discoveries and applications; and business services with expertise in product positioning and the intricacies of new product commercialization (Feldman & Florida, 1994: 210). When considering these two economic models, the general assumption under an economy of scale model is that marginal cost can decrease as the volume of output increases. This occurs for several reasons. One is that larger production volumes allow fixed costs to be spread over more units of output. Fixed costs can be understood as costs that do not change regardless of the amount of use, or at least change relatively little as a function of use; that is, there are costs that must be incurred even if production were to drop to zero. Specifically for the RE industry, fixed costs could include factories, warehouses, and machinery. Alternatively, in regards to newly emerging technologies found in the RE industry, such as biomass pyrolysis that is presently being developed by the Mid-Atlantic Technology, Research and Innovation Center (MATRIC), the costs of machinery are more variable than fixed. This is because of the rapid development of newly emerging technology, which in turn requires a continual change in machinery in order to keep up with increasingly efficient technological processes that meet specific demands found in a particular market and/or environment. When applied to an EA, innovation in technology can be distributed over a large area thus enabling the producer to absorb these changes in efficiency more rapidly while remaining reflexive, thus enabling the technology to rapidly adapt in order to meet specific requirements of a particular market. Lastly, there are current costs associated with any RE technology, and some of them will likely vary, at least in part, according to the level of output, such as maintenance. However, these costs often tend to be relatively small according to the costs of the main production of RE technologies themselves. Variable costs, in contrast to fixed costs, change directly as a function of use as in the use value of a particular RE technology in relation to its optimal output of energy and its environment. Examples of variable costs are feedstock and labor for producing electricity, diesel fuel for hauling biomass feedstock, or skilled labor for creating new RE technologies (e.g., R&D). Large economies of scale are most likely to be found in industries characterized by large fixed costs and consequently are not entirely reliant upon sustaining a competitive advantage in relation to technological innovation and/or market acceptability. Large fixed costs, and hence large economies of scale, are prevalent in capital-intensive industries such as large wind farms, coal fired power
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plants, petroleum refining, and photovoltaic manufacturing; very large levels of production are required to bring unit costs down to the lowest possible levels or so it is assumed. To attain such levels of output, it is necessary to have massive investment in production facilities, sometimes measured in the billions of dollars. This contemporary model of industry fails to consider technological innovation as a key component in generating revenue for said industry by instead creating short-term, unsustainable economic growth by lowering the initial investment that is commonly associated with economies of scale. Technological innovation occurs by encouraging the growth of small businesses and localized entrepreneurship (which are typically internalized and managed by large firms found in the ES model) as well as providing the producers with the ability to absorb innovative changes more rapidly by externalizing the means of manufacturing the component parts of a particular RE technology thus creating a positive feedback loop which again encourages the growth of small businesses and localized entrepreneurs. This in turn stimulates more specialization, and promotes more competition on the level of technological innovation. In his classic work on innovation and capitalism, Joseph Schumpeter argues powerfully that economic growth requires technological innovation the generation of higher quality products at lower unit costs than had previously been obtainable (Schumpeter, 1954). If the EA model, which encourages the emergence of small businesses and local entrepreneurship, is promoted within Central Appalachia, we can assume that its adoption will position this region as a leader in RE innovation and development. Besides the distinction between economies of scale and economies of agglomeration, the model of network economics presented in this paper takes advantage of recent discoveries in nonlinear science, theories of self-organization, emergence theories and, more importantly, evolutionary economics. Much like Basallas evolutionary theory of technology, evolutionary economics can be used to describe: (1) an increase in novelty within localized collective learning clusters, (2) selection and adaptation within regions that are confronted with an economic environment of increasing variation, and (3) the spatial formation of newly emerging technologies as an evolutionary process, in which the spatial connotation of increasing returns may result in a spatial lock-in thus sustaining the continuity of innovation (Basalla, 1988). Basically, these theories may be used to explain the emergence of technological innovation as more than the sum of its parts and, in particular, innovation as an emergent system. Technology markets are such synergistic wholes because they emerge as a result of the unintended consequences of many independent decision-makers interacting. As such, seemingly small decisions by individual actors compound upon each other and lay the framework for larger innovations. This holds true for all innovations - and therefore economic growth - as well; innovation and technological breakthrough does not just spontaneously occur from within a technological vacuum. What is far more likely is that revolutionarily novel technological breakthroughs are simply novel combinations of preexisting technologies. For example, the first automobiles certainly represent a technological breakthrough in total, but as a technological system they are simply a novel combination of subsystems - in this case wheels, axles, motors, etc.
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While considering these nonlinear economic theories one begins to realize that the typical understanding of economies of agglomeration, which are dependent upon cities and urban centers in order to exist, can be utilized in a way that suits the JOBS Projects rural model of development for Central Appalachia. For example, partial relocation into a rural setting would not erode the dynamic interplay found in the original urban setting but in some cases would reinforce as well as reproduce the dynamic effects found in the original complex network (Lamboy, 1986; Dosi, 1984). An additional benefit of partial relocation is that rural areas can look towards nearby urban areas for additional sources of capital, research, skilled workers, or specialized supplies (Regional Technical Strategies, Inc., 2009). In regards to areas like Central Appalachia which have historically witnessed economic development through the employ of natural resources, land, and low-cost labor most rural clusters were based on commodities or value-added production from extractive industries (Regional Technical Strategies, Inc., 2009). However, this historical clustering can be seen as an advantage because those rural areas fortunate enough to have exceptional natural amenities may also have developed clusters around tourism or transportation, and the few that are home to research universities may have developed some form of technology cluster (Regional Technical Strategies, Inc., 2009). In this case, these technology clusters formed around multiple engineering programs at various colleges and universities around Central Appalachia are fertile ground for the development of further novel technologies in related engineering sectors; these types of industrial and academic crossovers serve to further innovative breakthroughs as well as provide continually evolving workforce training. In relation to the RE industry, one aspect of EAs and self-organizing networks have in common is that their innovative properties emerge spontaneously out of the interactions among a variety of elements: component parts and maintenance employees, RE facility stakeholders, technology producers, and utility companies and customers. Even more broadly, the growth of the RE sector is directly related to growing concern over global climate change and sustainability. As such, this provides an especially exciting emergent opportunity to create a new market demand and branding formula for products that are green." Additionally, a set of new clusters may arise, based on alternative forms of energy such as biofuels, wind and solar, recycling, or restoration." Excitingly, the fastest growing opportunities, however, are in clusters representing renewable energy, energy efficiency, and environmental clean-up opportunities." (Regional Technical Strategies, Inc., 2009) As can be seen, there is already a growing market demand for implementation of RE technology; by incorporating models of open source development and utilizing the tendency for knowledge spillovers within the areas associated with implementation and production of RE technology, innovation and economic growth can be expected as an emergent phenomenon. In order to understand the processes that lead to emergent innovative networks, i.e. synergistic wholes, we need to create new ways of understanding the economic reality in Central Appalachia. In particular, instead of beginning at the top, on the level of scale (and moving down by dissecting industry into its constituent parts), or from the bottom
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(at the level of the community) we need a hybrid model between economies of scale and economies of agglomeration or, what we refer to as, distributed open innovation networks. For example, instead of creating a typical model of the market, or innovative networks, by using a small set of economic functions that capture the behavior of an ES in relation to R&D output (i.e., technological innovation), we need to create institutional environments which will allow a population of component part and maintenance employees, facility stakeholders and technology sellers, and utility companies and customers to interact and allow technological innovation to emerge spontaneously by maintaining the benefits of both the top-down and bottom-up models (Cohen & Levinthal, 1989). In this way, the bottom-up strategy compensates for the weakness of the top-down strategies typically utilized by development organizations within the coal regions of Central Appalachia. The top-down strategy fails to consider the topography of the region that limits the size of a particular industrial or commercial facility incidentally sustaining a general acceptance of surface mining as a means for addressing this barrier by creating developable land. In contrast, a strong emphasis on the bottom-up approach increases the likelihood of imitation and therefore reduces the overall returns of technological innovation. Higher expropriability leads to homogeneity which suppresses share losses and thereby pressure to create new knowledge (Knott, 2003: 702-703). This hybrid model of both the top-down and the bottom-up strategy is essentially an emergent system simply by attributing causation to both while maintaining the social properties of creativity or innovation as irreducible within these causal relations (Sawyer, 2005). This assumes that a distributed open innovation network requires a continuous influx of knowledge production, in this case, individual and group knowledge stocks. By providing a means for local stakeholder and employee participation within Central Appalachia, we can begin to build a vibrant and tangible model of economic development for both the urban and rural settings, in turn bringing Central Appalachia to the forefront of RE technological innovation and development.

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4 Sources of Innovation There are several sources of innovation. In the dominant linear model of innovation, the creative source is private firms or highly centralized R&D laboratories. This is where an agent (person or company) innovates in order to sell a given product; innovation is motivated primarily by the accumulation of capital. Once these institutions emerge, and in the case of private firm innovation, an ES emerges. Douglas North presents us with an alternative model in his book Institutions, Institutional Change and Economic Performance. North formulates the basic behavioral postulates that depart from the conventional neoclassical economic story of the market by focusing on the importance of formal and informal institutions in generating human behavior, in this case the informal institutions that could potentially promote innovation (e.g., employee interactions with a particular technology). Within this model, large companies are not only in the business of producing a profit, they also formalize various processes (R&D) in order to routinize them in relation to their pursuit of profit, hence the behavior that is generated is an acceptance of technological innovation as being produced from centralized R&D spillovers. However, according to traditional models the traditional solution to dealing with spillovers, granting strong property rights for the fruits of an invention, may also have negative consequences (Cortright, 2001: 7). As such, this paper is primarily concerned with developing a process for formalizing the informal networks of employees in order to stimulate technological innovation while retaining the employees active role in the production of technological change. It is also of paramount importance to not limit the production of knowledge to a specific group of firm employees (i.e. a specific, isolated R&D department); for example, case studies of the automobile industry have shown the extreme importance of worker led teams for continuous innovation and quality improvement (Cortright, 2001: 28). This active role will assure the participation of RE employees in the patent process by securing a financial share in the technology that is produced while maintaining a competitive edge within the specific RE industry via technological innovation. This inclusion into the patent process would effectually lead to a larger investment in knowledge by the particular industry in which the patent is realized; this structure would also address the lack of incentives for entrepreneurs to distribute or invest in more knowledge creation. Technological innovation and economic growth are both highly present in industrial clusters; this is due to ease of knowledge spillover between firms in both related and unrelated sectors. However, there are additional factors that must be considered when analyzing the innovative capacity of industrial clusters. According to a Ford Foundation report: Which people and businesses gain and which lose in the economy depends to a large extent on connections, relationships, and trust. These factors affect the exchange of knowledge about innovations, markets, and job opportunities and they affect collaboration. The real strength of clusters lies in the tacit knowledge that resides within the employees of
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companies in the cluster and its dispersion across companies and institutions (Regional Technical Strategies, Inc., 2009). As such, geographic locations that are ripe for close-knit industrial clusters are ones that already have a strong pre-existing cultural identity and sense of community. Both of these conditions are present in Central Appalachia and as such, it represents a unique area for focused industrial clustering within the newly emerging markets of RE technologies. MORE?? Another source of innovation, only now becoming widely recognized, is end-user innovation. This is where an agent (person or company) innovates for their own (personal or in-house) use because existing products do not meet their particular needs. Eric von Hippel, in Sources of Innovation, has identified end-user innovation as, by far, one of the most important aspects for understanding the emergence of innovation. More recent theories of innovation move beyond the simple dualism of the private firm and end-user models although both are still accounted for. Recent studies show that innovation does not just happen within the industrial supply-side, or as a result of the articulation of user demand, but through a complex set of processes that links many different players together not only developers and users, but a wide variety of intermediary organizations such as consultancies, SDO's, RE developers, entrepreneurs (e.g., community RE LLCs) and in the case of this research, informal employee and community stakeholder networks. Actor Network Theory (ANT) suggests that much of the successful innovation occurs at the boundaries of organizations and industries where the problems and needs of users are not mutually exclusive; in this case the problems which are confronted by RE employees and the needs of the RE facility owners and stakeholders can be linked with the inherent potential of technologies in a creative process that challenges both. As an alternative to the dominant linear model of innovation, ANT provides a theory of innovation translation which offers an approach to explaining innovation that does not rely on any supposedly innate nature of the innovation itself, or specific characteristics of the change agents [RE employees] or society [local owners and stakeholders], but rather on a process of network formation in which all actors seek to persuade others to become their allies in promoting the acceptance of their own view of the way the problem can best be solved (Tatnall & Gilding, 1999). With this model, the key to technological innovation is the creation of powerful collaborative partnerships to form a distributed open innovation network, and when an innovation fails to be taken up this can be considered to reflect on the inability of those involved to construct the necessary network of alliances amongst the other actors (McMaster & Vidgen, 1997). Getting a particular technological innovation accepted calls for collaborative strategies aimed at the enrollment of others in order to ensure useful technological change and acceptance. Another source of innovation and an essential part of creating an innovation network is in how the technology itself is designed. In systems engineering, modular design or "modularity in design" is an approach that subdivides a system into smaller parts
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(modules) that can be independently created and then used in different systems to drive multiple functionalities. It has been argued that new products are the outcome of a process that is based on the principle of novelty by combination (Georgescu-Roegan, 1970; Arthur, 2009). Benefits of modularity include reduction in cost due to less customization, a reduction in learning time and flexibility in design, as well as augmentations that add innovative solutions by merely plugging in a new module, and exclusion of unpractical designs. Examples of modular systems are cars, computers, high-rise buildings, RE technology and perhaps most importantly, smart grids. Earlier examples include looms, railroad signaling systems, telephone exchanges, pipe organs and electric power distribution systems. Computers use modularity to overcome changing consumer demands and to make the manufacturing process more adaptive to change. Modular design is an attempt to combine the advantages of standardization and compatibility (i.e., high volume normally equals low manufacturing costs) with those of customization. When situating modular design within an urban EA and its partial relocation within a rural setting, we can begin to construct a comprehensive understanding of the particular development model that is presented in this paper. Speaking generally in regards to RE, the production of components typically found within the ES model is internalized by way of vertical integration. This is usually a repercussion of the firms approach for reducing various transaction costs associated with externalizing the production of the component parts. For example, there may be four component parts involved in producing a particular RE technology (fig. 2). Typically, if the profit margin is large enough, the firm that is producing the particular RE technology will remain static and the emergence of new components will not occur. However, if the design of the RE technology is compatible with other technologies, by adopting certain industries standards, then the original firm is forced to cooperate in order to sell their particular product on the market. This competitive atmosphere increases a particular technologys ability to adapt to a rapidly changing market within both the demand and supply side through component integration, expansion of knowledge stocks, R&D spillovers, and perhaps most importantly, an increase in returns for a specific RE industry. Simply, the positive feedbacks of encouraging compatibility through industry standards stimulate technological change and innovation.

Figure 2 Components of RE Technology

The production of new RE technologies would then come to resemble fig.3 if and only if the larger firm decides that internalizing the production of components 6 and 7 is beneficial.

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Figure 3 Components of Improved RE Technology

If this is not the case and the larger firm decides not to internalize the production of components 6 and 7 (much like IBMs choice not to internalize production of all computer components in the 1980s), then firm 2 and 3 are then created from the knowledge spillovers found within the newly emerging EA (fig. 4).

Figure 4 Firms Involved in Improved RE Technology

The emerging EA would then create alternative components that were once found in the larger firm such as component 4 (fig. 5). This could occur for a variety of reasons, such as the RE customer deciding to purchase a technology with the traditional components of 1, 2, 3,and 5, while finding that particular attributes of component 4, which is produced by a competing firm, fits within their particular interests (fig. 5). This could occur if the alternative component 4 is better suited to a particular need found in the customers region here customers being the RE employees as well as local owners and stakeholders.

Figure 5 Production of RE Technology with Changing Component 4

The above demand side attributes of technological innovation, when situated within a supply side, encourage knowledge spillovers and the establishment of distributed innovation networks between producers. The first type of network is a centralized one in which suppliers are tied to lead supply firms as in the typical Japanese R&D firm (fig. 6); these firms integrated their R&D labs with factory floor employees in order to close the knowledge gaps that are found in the typical U.S. high technology firms. The U.S. structure of disintegration or spatial separation stifled the competitive advantages found in the Japanese model. The centralized firms found in the Japanese model pioneered new modes of integration that enabled them to generate a continuous flow of new products (i.e., total quality management, keiretsu, etc.). While recognizing the competitive advantages of the integrative approach these centralized firms did not account for the positive feedbacks found within modular design, specifically compatibility.

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Figure 6 Centralized Network

Although this research notes the importance of the integrative model utilized by Japanese firms, it is our intention to expand these integrative effects into a distributed open innovation network (fig. 7) or EA in order to increase as opposed to stifle technological innovation.

Figure 7 Distributed Network

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For example, W1, W 2, and W 3 represent the localized knowledge stocks local RE owners and stakeholders and RE employees at a particular RE facility with three different types of processes that are suited for independent variables found within the specific area that the facilities are operating (e.g., biomass feedstock variability, wind resource, economic constraints, ecological conditions, etc.). These local knowledge stocks are connected to R&D facilities (D1, D2), both public and private, as well as a centralized information trader (E1). A1, A2, A3, C1, C2, and C3 are the manufactures of component A and C which are found in a standardized RE system as well as future RE systems that are suitable to all facilities. Based on the collective nature of standardization and its relation to modular design, subassembly B, which is a product of technological innovation, needs to be compatible only with component C and not directly with other components. The continual splitting of components (technological innovation) and a sustained emergence of new component manufacturers and locallyowned RE facilities can be said to be a result of the relation between W and the respective public (D1) or private (D2) R&D firm. This relationship fosters knowledge spillovers and in turn cultivates a functioning distributed open innovative network. Taken together, all the component manufacturers (A,B,C), the localized knowledge stocks (W), the public and private R&D firms (D) and the centralized information trader (E) make up a distributed open innovation network. In contrast to centralized innovation networks where one dominant firm establishes the standards of compatibility, distributed open innovation networks jointly determine standards by establishing a precedent for negotiations between component manufacturers, R&D departments and firms, and localized knowledge stocks. No single actor in this network has control. Additionally, any actor who tries to dictate standards risks being isolated if other network actors decide not follow (Langlois & Robertson, 1991). When situating the above distributed open innovation network within a cluster of manufacturers or a rural/urban economy of agglomeration, as in the case of the JOBS Project, the development of skill and know-how and the easy communication of ideas and experience allow distributed open innovation networks to develop and to grow strong. By enhancing the formation of distributed open innovation networks and their strength, rural/urban agglomeration can affect the following within Central Appalachia: Accelerate the rate at which new technologies are developed in Central Appalachia Accelerate the rate at which the knowledge of new RE technologies enters into and is diffused throughout Central Appalachia communities. Accelerate the rate at which new technologies are incorporated into the products of manufacturers. Accelerate the rate at which these new or renewed products are adopted by the potential customers. Accelerate the rate at which Central Appalachia can mitigate the negative economic effects of Americas transition from a carbon intensive to a carbon neutral economy.

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5 Practical Applications in Central Appalachia Stimulating distributed open innovation networks must employ interdisciplinary teams because our focus on emergence requires a simultaneous consideration of analysis: individuals, their communication networks, and the group or industry that these interactions are situated within. Moreover, every introduction of a new RE technology into the market tends to be characterized by a high degree of uncertainty (Abernathy & Utterback, 1978). We recognize that all new RE technologies are likely to be introduced in several variants, each with its own specific design, that is, they are not yet standardized. New products are typically un-standardized because of the need for continual adaptation and improvement of their designs to suit customers needs, and through improvements of product characteristics due to experimentation with alternative inputs (Buckley & Casson, 1976). The JOBS Project can never be sure which technological design will dominate over time or when a dominant design will be established in the market, since market needs are ill-defined and can be stated only with broad uncertainty. It is our hope that this proposed strategy of development for Central Appalachia will contribute to absolving many of these barriers in the following ways: Create a new approach to standardization which emphasizes technological change and modular design as opposed to a single firm standardizing a technological design which can be replicated within the RE market. Create production assurances (i.e., new technologies are able to produce a predictable amount of energy and/or fuel) which will ensure investment in the new technology. Increase technological adaptation and improvement by stimulating random collisions of knowledge by creating and maintaining distributed open innovation networks via social and virtual (web based) interactions. Ensure a better understanding of market acceptance of new technology through employee/engineer collaboration via O&M database and active participation in technological development. Callon (1987) proposes that entities, like the JOBS Project, become strong by strategically creating collaborative partnerships or a mass of silent others in order to give us greater strength and credibility. A distributed open innovation network may become durable partly due to the durability of the bonds that hold it together, but also because it is itself composed of a number of durable and simplified networks. This solidity then results from a structure where each point is at the intersection of two networks: one that it simplifies and another that simplifies it (Callon 1987: 97). However, care is needed with the term network here, as it is used in a special way to describe shifting alliances of actors and collaborative partnerships and not some fixed thing; thus, the need for an information trader to track and organize these shifts. The JOBS Project, which is comprised of complex networks, is often converted into inscriptions or devices (Callon, 1986) such as, but not limited to, briefing papers, business models, strategy reports, academic papers, virtual models, sustainability indexes and web based integration tools. The following are examples of simplified
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networks which will contribute to the overall creation of a durable distributed innovation network within Central Appalachia: Central Appalachian Renewable Energy (CARE) advisory board: This will act as the central advisory nucleus for maintaining the social networks necessary to sustain a durable distributed open innovation network. Local Energy Action Plan (LEAP) steering committees: These committees will provide localized knowledge for assessing all three indices (i.e., cultural, economic and ecological index) for maintaining the sustainable nature of our development model. Human Sustainability Index (HSI): Technological innovation will be intimately integrated into the RE technologies surrounding environments via local knowledge stocks who will account for how specific changes in technology will affect the areas in which the facilities will be operating. The HSI will play an essential role in accounting for how technological innovation is related to its social, economic and ecological environments by accounting for the technologies lifecycle. (Please see The JOBS Projects 2010 Strategy Report for further explanations of the HSI.) R&D departments and firms: As an important link for supporting the model that is presented in this paper, university R&D departments within Central Appalachia will function as the central innovation nucleus for stimulating technological innovation within established as well as emerging RE industries. RE facility employees: This will be one of the most important aspects of the distributed open innovation network as these employees will be the material link to every day O&M practices as well as provide technological tweaks for a specific RE technology. By identifying interested parties who wish to further develop their RE skills, this innovation network will provide educational pathways for expanding RE use and development in Central Appalachia and possibly the world. Modular design: This design approach will supply valuable information for R&D as well as stimulate RE innovation. The basic premises for the design approach is to stimulate as opposed to inhibit the creation of new entrepreneurs and component part manufactures and developers. Locally-owned LLCs and entrepreneurs: These entities will provide invaluable information for various aspects of a particular RE facility such as: marginal costs, business models, transaction costs, local revenues generated, ecological footprint and much more. Manufacturers of component parts: These manufacturers will provide insight into the generative nature of the distributed innovation network. Information trader: The JOBS Project and/or MATRIC will be the primary entities which will organize the information links into a management database. This may include the creation of a closed information management web tool which will capture information, organize data, and establish information links according to the evolving interests of stimulating technological change. Community and Technical Colleges: MORE??
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Once a distributed open innovation network is formed, however, that is not the end of the story as these networks are always unreliable and can become unstable. The entry of new actors, desertion of existing actors or changes in alliances can cause the virtual network - advisory board and O&M database - to be subjected to substantial shifts and their contents reconsidered. Distributed open innovation networks rely on the maintenance of its simplifications for its continued existence. These simplifications are under constant challenge and if they break down the network will collapse, perhaps to re-form in a different configuration as a different and possibly less participatory network (e.g., tendency to monopolize). Recognition of institutional interests, both innovative and profit driven, and integrating the innovation network within these nested interests is one example of maintaining the overall stability of the network (Callon, 1986). With regard to modular design, within an object-oriented RE environment, each component of the facility can be considered as an object with its own properties, methods and actions. (Parsons & Wand, 1997) In common with the encapsulation of objects in object-oriented RE environments the actors, or "heterogeneous entities", encountered in ANT, have attributes and methods and may themselves be composed of other objects or actors (Bijker & Hughes, 1987). So, when looked into carefully, an actor itself consists of a network of interactions and associations. In the same way, a particular network may be simplified to look like a single point actor (Law, 1992). Our project team, both Tech Connect and MATRIC as well as many other associated partners, will continually reassess the data on a quarterly base in order to ensure the successful implementation of modular design within target RE technologies. The JOBS Project seeks to punctualise (Law, 1992) a stable distributed open innovation network and so consider it in the form of a single administrative entity, that is, the information trader (e.g., The JOBS Project and/or MATRIC). Whenever possible it is useful to simplify, to an administrative entity, a network that acts as an element to make it easier to deal with. An actor within the distributed open innovation network then ... can be compared to a black-box [informal network] that contains a network of blackboxes that depend on one another both for their proper functioning and for the proper functioning of the network (Callon, 1987: 95). Some considerations should be taken into account during the development and integration phases of the distributed open innovation network, in particular, the effects of economies of scale and agglomeration. If there are economies of scale associated with the development of new technologies, a more than proportionate number of innovations in general may be developed in urban and rural areas. Actually, we should expect cumulative effects here in both areas. A large supply of innovations spurs product development in the urban sector while stimulating RE implementation within the rural areas. A high volume of RE R&D, on the other hand, spurs innovative activities among the suppliers of component parts in the urban areas. And on the demand side a similar process is working. An agglomeration with many qualified and demanding customers in the rural areas spurs product development at the same time as a rich supply of product developers spurs the adoption of new RE technologies among the customers. Hence,
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we will take into account two cumulative processes that stimulate RE development in agglomerations and in turn we should expect technological innovations and also the creation of new RE technologies and the renewal of old technologies by means of innovation adoption to appear in manufacturing clusters, both in time and space (Porter, 1990; DeBresson, 1989).

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6 Case Study May want to change?? In the case of our proposed pyrolysis project we are developing an emergent R&D program, based on clustering effects, which will stimulate technological innovation, industry growth in both the production as well as the manufacturing sectors, accelerated acceptance of the distributed energy production model, and many other outliers which cannot be accounted for at this time due to the pioneer status of the JOBS Project. The pyrolysis facility is an integrated energy system that can be modified depending on the needs of the project. The hallmark of all well-designed pyrolysis systems is increased efficiency of fuel use. By using waste heat recovery technology to capture a significant proportion of heat created as a byproduct in electricity generation, this system will typically achieve total system efficiencies of 38 to 41 percent for producing electricity and thermal energy. These efficiency gains will improve the economics of the overall project, and also produce other environmental benefits. This pyrolysis system will be a sequential generation of mechanical and thermal energy in a single, integrated system. The system will consist of a number of individual componentsprime mover (heat engine), generator, heat recovery, and electrical interconnection configured into an integrated whole. The prime mover of this system will be a steam turbine which has little to no sensitivity to fuel moisture. This prime mover will ideally burn secondary timber residues to produce shaft power. Additional technologies may be used in configuring a complete CHP system, including boilers, absorption chillers, desiccants, and engine-driven chillers. The steam turbine is a thermodynamic device that converts the energy in high-pressure, high-temperature steam into shaft power that in turn can be used to turn a generator and produce electric power. Unlike gas turbine and reciprocating engine pyrolysis systems where heat is a byproduct of power generation, steam turbine pyrolysis systems normally generate electricity as a byproduct of heat (steam) generation. A steam turbine requires a separate heat source and does not directly convert fuel to electric energy. The energy is transferred from the boiler to the turbine through highpressure steam, which in turn powers the turbine and generator. In the thermodynamic cycle illustrated in Figure 9, called the Rankine cycle, liquid water is converted to high-pressure steam in the boiler and fed into the steam turbine. The steam causes the turbine blades to rotate, creating power that is turned into electricity with a generator. A condenser and pump are used to collect the steam exiting the turbine, feeding it into the boiler and completing the cycle. This system will utilize a condensing steam turbine for power-only applications that expands the pressurized steam to low pressure at which point a steam/liquid water mixture is exhausted to a condenser at vacuum conditions which is in turn circulated back into a closed-loop heat recovery system.

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The pyrolysis facility will require technicians to maintain and repair systems, equipment and associated controls. Those interested in pursuing this specialized trade will typically obtain certification from technical schools, trade schools or community colleges. Some options include the Boiler Operator or Boiler Technician certificate. Boiler technician programs often contain an apprenticeship component. This apprenticeship will occur at the facilities the JOBS Project is presently developing throughout the state through our Smart-Schools program. Upon completion of the boiler technician certificate, students usually qualify to sit for licensure examinations. We are presently developing educational pathways from these positions which stimulate interests within the everyday interactions of the employee and their specified tasks and linking these interactions with highly specialized technological R&D processes. If the employee becomes interested in expanding her/his developed skills in R&D, she/he can then apply for a specialized field of study of her/his choice at West Virginia University's forestry program or an associated educational institution. West Virginia University offers an Associate of Applied Science (AAS) degree in Boiler Engineering, Feedstock management or Energy Technology. We are presently exploring the feasibility of these educational pathways by developing a specialized O&M database for capturing real world interactions and/or "suggested tweaks" by the employees within various biomass processes (harvesting to energy generation) into a virtual clustering map (KMZ format in Google Earth) which will simulate rural economies of agglomeration by spatially locating the information captured by the O&M database (Tantall & Gilding, 1999). This will allow us to bridge the gaps between the RE employees, West Virginia University's Industries of the Future Biomass Program, MATRIC, project managers, and technology manufacturers. By bridging these gaps we can begin to stimulate collaboration with one common goal, creating a distributed innovation network. In effect, these virtual clusters will have the same effect that economies of agglomeration have within the urban setting. This clustering effect essentially stimulates growth in manufacturing and R&D for a particular sector, in this case biomass (Saxenian, 1994; ARC, 2006). The Smart-Tech and Smart-Growth coordinators of the JOBS Projects collaborative team will play an essential role in creating the O&M database and virtual clustering maps. The O&M database will not only play an important role in stimulating technological innovation but it will also aid in developing new approaches to sustainability via Human Sustainability Index (HSI). By collaboratively creating this database, innovation will be intimately integrated into the technologies surrounding environments by accounting for how specific changes in technology will affect the areas in which they will be operating. The virtual clustering maps will play an essential role in accounting for how technological innovation is related to its social, economic and ecological environments by accounting for the technologies lifecycle. Specifically, these life cycles capture the available feed stocks, local skill sets, transportation infrastructure, etc. The Smart-Market coordinators will develop the locally-owned model for this facility as well as developing employee ownership models (e.g., stock shares, profit shares, board
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participation etc.) in order to maintain a high level of employee retention and community support of these projects. In turn, all these interactions will inform the Smart-Solutions coordinators in their efforts to influence policy, organize community events, and further develop the local steering committees and advisory board.

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