Events

Max Planck Institute for Innovation and Competition, Room E10

Moderation: Heiko Richter

Max Planck Institute for Innovation and Competition, Room 313

Schumpeter claims that recessions are periods of “creative destruction”, concentrating innovation that is useful for the long-term growth of the economy. However, previous research finds that standard measures of innovation, such as R&D expenditures or number of patents, concentrate in booms. We argue that these standard measures do not capture the different dimensions of firms’ innovative search strategies. We introduce a model of innovative exploration and exploitation over the business cycle and find evidence that exploitation strategies are more prevalent in booms while exploration strategies are more prevalent in recessions. Results are stronger for more cyclical and less financially constrained firms. In contrast to the Schumpeterian view of creative destruction, we show that young and old firms contribute equally to the countercyclicality of innovation. Taken together, these results raise questions on macroeconomic stability as a policy goal.

Contact: Fabian Gaessler

Max Planck Institute for Innovation and Competition, Room 313

In evaluating the effectiveness of R&D subsidies, the literature so far has completely neglected the possibility of misappropriation of public funds. This paper contributes to the literature by evaluating the causal effect of R&D subsidies on R&D expenditures when monitoring is weak and misappropriation takes place due to moral hazard behavior. Our analysis is based on Chinese firm-level data for the period 2001-2011. Misappropriation is a major concern as we calculate that 42% of grantees misused R&D subsidies, corresponding to 53% of the total amount of R&D subsidies. In a setting with one-sided noncompliance to funding contract rules, we differentiate between the intention-to-treat (ITT) effect and the complier average causal effect (CACE). The ITT shows how effective the R&D policy was in practice when misappropriation exists. The CACE, in contrast, depicts how effective the policy could have been without misappropriation and thus is a measure for the efficacy of the R&D subsidy policy. Combining entropy balancing and IV methods to estimate both ITT and CACE, the ITT results show mild partial crowding out of R&D expenditures. Most strikingly, however, the CACE turns out to be more than twice as large as the ITT and confirms additionality of R&D subsidies. Thus, misappropriation of R&D subsidies considerably undermines the efficacy of Chinese R&D programs. (joint work with Philipp Boeing)

Contact: Fabian Gaessler

Max Planck Institute for Innovation and Competition, Munich, Room 313
 

We investigate the impact of the introduction of patent rights for software inventions in the U.S. on academic computer scientists’ publication output. Difference-in-difference estimations that compare U.S. academic computer scientists working on software to (1) U.S. academic scientists working on hardware and (2) European university scientists working on software reveals that the introduction of software patents in the U.S. led to a decrease of (citation-weighted) publications as compared to U.S. computer scientists working on hardware and as compared to the European peers. The effect is stronger for scientists at the left-hand side of the ability distribution. This pattern is consistent with a simple model of time allocation between patenting and publishing. (joint work with Laurent Bergé and Thorsten Doherr)

Contact: Felix Pöge

Max Planck-Institute for Innovation and Competition, Room E10

Moderation: Jörg Hoffmann 

Max Planck Institute for Innovation and Competition, Munich, Room 313

 Considering that both patents and trade secrets can promote knowledge diffusion via licensing, we compare patents and secrets on the way they facilitate diffusion through non-exclusive licensing. This comparison is important because AI algorithms are not patentable. Patents differ from trade secrets on the easiness of imitation when licensed to many downstream producers. In view of this, we argue that secrets are better in defending one’s monopoly under the threat of imitation, inducing market failure on the diffusion of AI. We also find a non-linear relationship between patent strength and the diffusion of ideas, i.e., patents of intermediate patent strength are best as diffusion instruments.

Contact: Dr. Fabian Gaessler

Max Planck Institute for Innovation and Competition, Munich, Room 313

We theoretically derive a simple rule for the optimal patent breadth and duration of pharmaceutical patents. The rule requires only data on generic firms’ investments in imitation prior to the expiry of originator patents. We then test the rule using a unique patent level data set from the US. Paragraph IV challenges offer a clear metric of imitation and patent term extensions create the variation in patent term. Using two quasi-experimental approaches and newly constructed data, we document that extending patent length increases incentives to imitate whereas broadening patents reduces these incentives. Our results together suggest that effective terms of new drug patents should be made shorter and delays in commercialization of new drugs should be compensated by increasing breadth.

Contact: Felix Poege

Moderation: Victoria Rivas

Max Planck Institute for Innovation and Competition, Room E 10

Max-Planck-Institut für Innovation und Wettbewerb, München, Raum 313

The effects of increases in external funding on firm-level patenting are empirically investigated. Results indicate that the impact of finance on inventive activities is more multilayered than commonly suggested. In fact, changes in the level of funding affect value-relevant characteristics of patents filed. In a quasi-natural experimental setup, staggered and country-specific legislative amendments of the European financial market harmonization during the 2000s are utilized as an exogenous shift improving firms’ access to funding. First, it will be shown that financial integration leads to increased bank lending to ex ante financially constrained firms. Second, it will be analyzed whether affected firms changed their patenting activities. The finding is that increased funding is associated with more patents in quantitative terms but of lower average technological quality and value. Further, affected firms alternate towards filing fewer explorative (i.e., impactful and generally applicable) but rather incremental patents. By providing new insights on the relation between finance and firm-level inventions, the results therefore suggest that it is important to acknowledge potentially diverse effects arising from improved access to funding.

Contact Person: Zhaoxin Pu

Government policy in support of innovation often varies across technology areas. An important example are climate change policies that typically try to support so called clean technologies that avoid greenhouse gas pollution and hamper dirty technologies that are associated with polluting emissions. At the margin, private returns of R&D investments in different areas should be equalized. Hence, shifting the composition of R&D activities by a policy intervention will only have a meaningful impact on economic outcomes if the external returns differ. This paper compares innovation spillovers between clean, dirty and other emerging technologies using patent citation data. We develop a new methodology to capture knowledge spillovers using the Google’s Page rank algorithm. Exploring a wide range of robustness checks we consistently find up to 60% higher levels of spillovers from clean technologies. We also use firm-level financial data to investigate the impact of knowledge spillovers on firms’ market value and find that marginal economic value of spillovers from clean technologies is also greater.

Contact: Dr. Fabian Gaessler