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The Size Distribution of Profits from Innovation

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  • F. M. SCHERER
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    Abstract

    This paper reports on research seeking to determine how skew the distribution of profits from technological innovation is -- i.e., whether it conforms most closely to the Paretian, log normal, or some other distribution. The question is important, because high skewness makes it difficult to pursue risk-hedging portfolio strategies, and it may have real business cycle consequences. Data from several sources are examined: the royalties from U.S. university patent portfolios, the quasirents from marketed pharmaceutical entities, the stock market returns from three large samples of high-technology venture startups, and preliminary results from a survey of German patents on which renewal fees were paid until full-term expiration in 1995. The evidence reveals a mixture of distributions, some close to log normality and some Paretian. Preliminary hypotheses about the underlying behavioral processes are advanced.

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    File URL: http://www.jstor.org/stable/20076127
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    Bibliographic Info

    Article provided by ENSAE in its journal Annals of Economics and Statistics.

    Volume (Year): (1998)
    Issue (Month): 49-50 ()
    Pages: 495-516

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    Handle: RePEc:adr:anecst:y:1998:i:49-50:p:19

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