nep-ino New Economics Papers
on Innovation
Issue of 2007‒09‒30
fifteen papers chosen by
Koen Frenken
Utrecht University

  1. The market value of patents and R&D: Evidence from European firms By Bronwyn H. Hall; Grid Thoma; Salvatore Torrisi
  2. Research, Knowledge Spillovers and Innovation By Piergiuseppe Morone; Carmelo Petraglia; Giuseppina Testa
  3. Cumulative Innovation, Sampling and the Hold-Up Problem By Pollock, Rufus
  4. Policy vs. Consumer Pressure: Innovation and Diffusion of Alternative Bleaching Technologies in the Pulp Industry By David Popp; Tamara Hafner; Nick Johnstone
  5. Innovation and Imitation with and without Intellectual Property Rights By Pollock, Rufus
  6. Is Distance Dying at Last? Falling Home Bias in Fixed Effects Models of Patent Citations By Griffith, Rachel; Lee, Sokbae; Van Reenen, John
  7. Technological opportunity, long-run growth and convergence By Jakub, GROWIEC; Ingmar, SCHUMACHER
  9. Persistence of Monopoly, Innovation, and R&D Spillovers: Static versus Dynamic Analysis By Eugen Kovac; Viatcheslav Vinogradov; Kresimir Zigic
  10. R&D Outsourcing Contract with Information Leakage By Shirley J. , HO
  11. Environmental innovation under Cournot competition By Maria Eugenia, SANIN; Skerdilajda, ZANAJ
  12. Behaviour in Networks of Collaborators: Theory and Evidence from the English Judiciary By Jordi Blanes i Vidal; Clare Leaver
  13. COMPETITIVE EFFECTS OF IT INNOVATION ON BANK STRATEGY, 1985-1995 By batiz-lazo, bernardo
  14. Information and communications technologies,coordination and control, and the distribution of income By Frederick Guy; Peter Skott
  15. Forever Minus a Day? Some Theory and Empirics of Optimal Copyright By Pollock, Rufus

  1. By: Bronwyn H. Hall; Grid Thoma; Salvatore Torrisi
    Abstract: This paper provides novel empirical evidence on the private value of patents and R&D in European firms during the period 1991-2004. We explore the relationship between firm's stock market value, patents, and "quality"-weighted patents issued by the European Patent Office (EPO) and the US Patent and Trademark Office (USPTO). We find that Tobin's q is positively and significantly associated with R&D and patent stocks, but that only those patents taken out in both patent offices or at the USPTO alone seem to be valued. Either forward citations or a composite quality indicator based on forward citations, family size and the number of technical fields covered by the patent are modestly informative for value. Software patents account for a rising share of total patents in the USPTO and EPO. Moreover, some scholars of innovation and intellectual property rights argue that software and business methods patents on average are of poor quality and that these patents are applied for merely to build portfolios rather than for protection of real inventions. We found that such patents are considerably more valuable than ordinary patents, especially if they are taken out in the U.S. However their quality indicators are no more valuable than those of other patents, suggesting that their primary purpose may be to increase the size of the patent portfolio.
    JEL: D24 G32 L86 O31 O34
    Date: 2007–09
  2. By: Piergiuseppe Morone; Carmelo Petraglia; Giuseppina Testa (School of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: In order to assess the relationship between internal and external innovative inputs and innovative output at firm level, a knowledge production function is estimated for a representative sample of Italian manufacturing firms over the period 1998-2003. To account for endogeneity of R&D effort in the knowledge production function, we estimate a Heckman selection model on R&D decisions. Results support the view that R&D intensity is positively linked to firm size, age and human capital endowment as well as to higher exposure to international competitive pressure. Then, the knowledge production function is estimated using a standard probit, where the probability to innovate of each firm depends upon intramural R&D effort, regional and industrial spillovers and on a vector of interaction and control variables. Our measures of external knowledge, which circulates and potentially transfers across firms belonging to the same geographical or industrial spaces, are based on predicted values for R&D effort in the region and industry respectively. Our results suggest a positive relationship between sectoral spillovers and innovation; knowledge diffusion in the regional space positively impacts on the probability to innovate of the recipient firm only if the latter has an appropriate endowment of human capital.
    Keywords: Innovation, knowledge, spillovers
    JEL: O3 L6 C25
    Date: 2007–09
  3. By: Pollock, Rufus
    Abstract: With cumulative innovation and imperfect information about the value of innovations, intellectual property rights can result in hold-up and therefore it may be better not to have them. Extending the basic cumulative innovation model to include `sampling' by second-stage firms, we find that the lower the cost of sampling, or the larger the differential between high and low value second-stage innovations, the more likely it is that a regime without intellectual property rights will be preferable. Thus, technological change which reduces the cost of encountering and trialling new `ideas' implies a reduction in the socially optimal level of rights such as patent and copyright.
    Keywords: Cumulative Innovation; Hold-Up; Sampling; Intellectual Property
    JEL: L5 O3 K3
    Date: 2006–01–24
  4. By: David Popp; Tamara Hafner; Nick Johnstone
    Abstract: In the late 1980s and early 1990s, concern over dioxin in both paper products and wastewater led to the development of techniques that reduced the use of chlorine in the pulp industry. Both regulatory and consumer pressure motivated this change. We use patent data to examine the evolution of two completing bleaching technologies in five major paper-producing countries, both of which reduce the use of chlorine in the pulping process. By the end of the 1990s, nearly all pulp production in these countries used one of these technologies. Unlike other papers using patents to study environmentally-friendly innovation, we focus on a process innovation, rather than on end-of-the-pipe solutions to pollution. Moreover, while previous studies emphasize the importance of regulation for inducing innovation, here we find substantial innovation occurring before regulations were in place. Instead, pressure from consumers to reduce the chlorine content of paper drives the first round of innovation. However, while some companies choose to adopt these technologies in response to consumer pressure, not all firms will differentiate their product in this way. Thus, governments need to regulate if their goal is broad diffusion of the environmental technology.
    JEL: O31 O33 Q53 Q55
    Date: 2007–09
  5. By: Pollock, Rufus
    Abstract: An extensive empirical literature indicates that returns from innovation are appropriated primarily via mechanisms other than formal intellectual property rights -- and that `imitation' is itself a costly activity. However most theory assumes the pure nonrivalry of `ideas' with its implication that, in the absence of intellectual property, innovation (and welfare) is zero. This paper introduces a formal model of innovation based on imperfect competition in which imitation is costly and an innovator has a first-mover advantage. Without intellectual property, a significant amount of innovation still occurs and welfare may actually be higher than with intellectual property.
    Keywords: Innovation; Imperfect Competition; Intellectual Property; Imitation
    JEL: L5 O3 K3
    Date: 2006–09
  6. By: Griffith, Rachel; Lee, Sokbae; Van Reenen, John
    Abstract: We examine the 'home bias' of international knowledge spillovers as measured by the speed of patent citations (i.e. knowledge spreads slowly over international boundaries). We present the first compelling econometric evidence that the geographical localization of knowledge spillovers has fallen over time, as we would expect from the dramatic fall in communication and travel costs. Our proposed estimator controls for correlated fixed effects and censoring in duration models and we apply it to data on over two million citations between 1975 and 1999. Home bias declines substantially when we control for fixed effects: there is practically no home bias for the more 'modern' sectors such as pharmaceuticals and information/communication technologies.
    Keywords: fixed effects; home bias; knowledge spillovers; patent citations
    JEL: F23 O32 O33
    Date: 2007–09
  7. By: Jakub, GROWIEC (Warsaw School of Economics, Warsaw -Poland and CORE, UniversitŽ catholique de Louvain - Belgium); Ingmar, SCHUMACHER (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))
    Abstract: We derive an R&D-based semi-endogenous growth model where technological progress depends on the available amount of technological opportunity. Incremental innovations provide direct increases in the knowledge stock but they reduce technological opportunity and thus the potential for further improvements. Technological opportunity can be renewed only by radical innovations (which have no direct impact on factor productivity). Investigating the model for its implications on economic growth leads to two basic observations. One, in the long-run, a balanced growth path with a consstant and semi-endogenous long-run economic growth rate exists only in a specific knife-edge case which implies that technological opportunity and knowledge grow at equal rates. Two, the transition need not be monotonic. Specifically, we show under which conditions our model generates endogenous business cylces via complex dynamics without uncertainty.
    Keywords: Technological opportunity, incremental innovation, radical innovation, endogenous busuness cycles, balanced growth, Andronov-Hopf bifurcation, complex dynamics
    JEL: E32 O30 O41
    Date: 2007–09–19
  8. By: Kenneth I. Carlaw (University of British Columbia - Okanagan); Richard G. Lipsey (Simon Fraser University)
    Abstract: The model incorporates characteristics of general purpose technologies established empirically but not currently modeled: GPTs occur simultaneously in several technology "classes," such as ICTs and materials; different "versions" of each class often compete with each other; GPTs of different classes complement each other; uncertainty is associated with GPT development and diffusion. The model's three sectors produce consumption goods using applied knowledge, applied knowledge using GPTs, and pure knowledge that occasionally discovers a new GPT whose efficiency increases as it diffuses. The model allows for competition between, and complementarities among GPTs, replicates accepted growth facts and is useful for policy analysis.
    Keywords: General purpose technologies (GPTs), diffusion, efficiency, growth, R&D.
    JEL: O41
    Date: 2007–09
  9. By: Eugen Kovac; Viatcheslav Vinogradov; Kresimir Zigic
    Abstract: We build a dynamic duopoly model that accounts for the empirical observation of monopoly persistence in the long run. More specifically, we analyze the conditions under which it is optimal for the market leader in an initially duopoly setup to undertake pre-emptive R&D investment ("strategic preda- tion") that eventually leads to the exit of the follower firm. The follower is assumed to benefit from the innovative activities of the leader through R&D spillovers. The novel feature of our approach is that we introduce an explicit dynamic model and contrast it with its static counterpart. Contrary to the predictions of the static model, strategic predation that leads to the persis- tence of monopoly is in general the optimal strategy to pursue in a dynamic framework when spillovers are not large.
    Keywords: Dynamic duopoly, R&D spillovers, persistence of monopoly, strate- gic predation, accommodation.
    JEL: L12 L13 L41
    Date: 2007–01
  10. By: Shirley J. , HO (National Chengchi University, Taiwan)
    Abstract: This paper studies an R&D outsourcing contract between a firm and a contractor, considereing the possibility that in the interim stage, the contractor might sell the innovation to the rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.
    Keywords: R&D outsourcing, Contract, Information leakage, Collusion, Multiple agents
    JEL: D82 Z
    Date: 2007–09–17
  11. By: Maria Eugenia, SANIN (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Skerdilajda, ZANAJ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE) and Universita di Siena)
    Abstract: In this paper, we address the incentives to invest in environmental innovation of enterprises that exercise market power in the output market and also buy and sell pollution permits. Differently from the existing literature, using a market approach we explicitly model the interaction between the output market, where firms play ˆ la Cournot, and the permits market. We find that, in the new equilibrium firms behave symmetrically, that is, they either both innovate to protect their market share in the output market or they both choose not to innovate. Whether the innovation equilibrium arises or not depends on the output demand and on the productivity enhancement and not on the distribution of permits among firms. Finally, we show that, under this market configuration, collusion can be welfare enhancing.
    Keywords: environmental innovation, tradable permits, interaction ˆ la Cournot
    JEL: D43 L13 Q55
    Date: 2007–09–17
  12. By: Jordi Blanes i Vidal; Clare Leaver
    Abstract: This paper uses data on judicial citations to explore whether the diffusion and/or application of knowledge within an organisation is affected by worker connectivity. Developing a simple model of discretionary citations, we distinguish between two hypotheses: knowledge diffusion whereby connected judges are more likely to be aware of each others` cases than unconnected judges, and socialisation whereby judges are more likely to be positively disposed to judges to whom they are more connected. Our empirical strategy exploits three important institutional features: (a) the random allocation of judges to case committees in the English Court of Appeal, (b) the existence of both positive and neutral citations and (c) the fact that connections occur over time. We are able to reject the knowledge diffusion hypothesis in its simplest form. We are unable to reject the socialisation hypothesis, and find strong evidence to support it. The paper concludes with a discussion of implications for other knowledge-based organisations.
    Keywords: Networks, Public Sector Organizations, Judicial Citations
    JEL: H1 K4 Z13
    Date: 2007
  13. By: batiz-lazo, bernardo
    Abstract: Through case study research this paper illustrates opportunities presented by IT-based technological change in British retail bank markets (1985-1995). For the managers of the Royal Bank of Scotland IT appeared to lower entry barriers, exit barriers and deliver high sustainability of competitive advantage. The strategic intent behind diversification patterns of the Royal Bank of Scotland suggested competitive considerations were at a premium because unsolicited take-over bids in the early 1980s put pressure on managers to create growth opportunities. Direct Line Insurance was a subsidiary from the Royal Bank of Scotland. Direct Line was also the first retail finance institution to establish a clear competitive advantage based on information technology. The success of Direct Line enabled an increase in the market share of British retail financial services of The Royal Bank of Scotland. Direct Line is a case of planned success that questions the extent to which banks’ competencies must change to master alternative delivery channels. The success of Direct Line also suggested more effective execution than other activities explored by managers of the Royal Bank of Scotland.
    Keywords: Financial institutions; technological change; corporate strategy.
    JEL: N24 L10
    Date: 2007–09
  14. By: Frederick Guy (Birkbeck College); Peter Skott (University of Massachusetts Amherst)
    Abstract: We consider the links between information and communications technologies (ICTs) and the distribution of income, as mediated by problems of coordination and control within organizations. In the large corporations of the mid-twentieth century, a highly developed division of labor was coordinated and controlled with the aid of relatively underdeveloped ICTs. This created a situation in which the options of top manage- ment were constrained while the individual and collective power of lower paid workers was enhanced. Only in the late twentieth century, when the microprocessor and re- lated technologies transformed the information systems of organizations, did improve- ments in the tools of coordination and control race ahead of the growing demands of coordination and control. These technological changes have reduced the power of lower-paid employees, increased that for higher-paid employees, and led to an increase in income inequality. Thus, the more important aspects of new technology relate to the "power-bias", rather than the "skill-bias", of technological change. JEL Categories: J31, O33
    Keywords: communications technology, power-biased technical change, inequality, work intensity, efficiency wage.
    Date: 2007–09
  15. By: Pollock, Rufus
    Abstract: The optimal level for copyright has been a matter for extensive debate over the last decade. This paper contributes several new results on this issue divided into two parts. In the first, a parsimonious theoretical model is used to prove several novel propositions about the optimal level of protection. Specifically, we demonstrate that (a) optimal copyright is likely to fall as the production costs of `originals' decline (for example as a result of digitization) and that (b) the optimal level of copyright will, in general, fall over time. The second part of the paper focuses on the specific case of copyright term. Using a simple model we characterise optimal term as a function of a few key parameters. We estimate this function using a combination of new and existing data on recordings and books and find an optimal term of around fifteen years. This is substantially shorter than any current copyright term and implies that existing copyright terms are too long.
    Keywords: Copyright; Intellectual Property; Copyright Term; Technological Change
    JEL: O34 O31 L10
    Date: 2007–02

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