Working Paper: NBER ID: w28880
Authors: Ashish Arora; Sharon Belenzon; Matt Marx; Dror Shvadron
Abstract: We estimate the effect of patent protection on follow-on investments in corporate scientific research. We exploit a new method for identifying an exogenous reduction in the protection a granted patent provides. Using data on public, research-active firms between 1990 and 2015, we find that firms decrease follow-on research after a reduction in patent protection, as measured by a drop in internal citations to an associated scientific article. This effect is stronger for smaller firms and in industries where patents are traded less frequently. Our findings are consistent with a stylized model whereby patent protection is a strategic substitute for commercialization capability. Our results imply that stronger patents encourage follow-on research, but also shift the locus of research from big firms toward smaller firms and startups. As patent protection has strengthened since the mid-1980s, our results help explain why the American innovation ecosystem has undergone a growing division of innovative labor, where startups become primary sources of new ideas.
Keywords: patent protection; research investments; cumulative research
JEL Codes: O30; O32; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm size moderates the effect of reduction in patent protection (L25) | Decreased follow-on research (D29) |
| Reduction in patent protection (O34) | Shift of research locus from larger firms to smaller firms (L25) |
| Reduction in patent protection (O34) | Decreased follow-on research (D29) |