Working Paper: CEPR ID: DP4513
Authors: Sudipto Bhattacharya; Sergei Guriev
Abstract: We develop a model of two-stage cumulative research and development (R&D), in which one Research Unit (RU) with an innovative idea bargains to license her non-verifiable interim knowledge exclusively to one of two competing Development Units (DUs) via one of two alternative modes: an open sale after patenting this interim knowledge, or a closed sale in which precluding further disclosure to a competing DU requires the RU to hold a stake in the licensed DU?s post-invention revenues. Both modes lead to partial leakage of the RU?s knowledge from its description, to the licensed DU alone in a closed sale, and to both DUs in an open sale. We find that higher levels of interim knowledge are more likely to be licensed via closed sales. If the extent of leakage is lower, more RUs choose open sales, generating a non-monotonic relationship between the strength of Intellectual Property Rights (IPR) and aggregate R&D expenditures. We also develop a rationale for the ex ante acquisition of control rights over the RU by a DU, rooted in the RU?s incentives to create knowledge under alternative modes of sale thereof, and her wealth constraint in ex interim bargaining.
Keywords: Corporate Venturing; Patents; Research and Development; Sequential Innovation
JEL Codes: D23; O32; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IPR strength (O34) | R&D expenditures (O32) |
| mode of knowledge sale (D83) | incentives of RU and DUs (R38) |
| IPR strength (O34) | mode of knowledge sale (D83) |
| extent of leakage (L15) | mode of knowledge sale (D83) |
| mode of knowledge sale (D83) | aggregate R&D expenditures (O32) |
| corporate venturing (L26) | RU's ex ante incentives to create knowledge (O36) |
| wealth constraints of RU (D10) | efficiency of corporate venturing arrangements (L24) |