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Innovation and Incentives: Evidence from Corporate R&D

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  • Josh Lerner

    (Graduate School of Business Administration, Harvard University)

  • Julie Wulf

    (Wharton School, University of Pennsylvania)

Abstract

Beginning in the late 1980s, American corporations began increasingly linking the compensation of central research personnel to the economic objectives of the corporation. This paper examines the impact of the shifting compensation of the heads of corporate research and development. Among firms with centralized R&D organizations, a clear relationship emerges: more long-term incentives (such as stock options and restricted stock) are associated with more heavily cited patents. These incentives also appear to be associated with more patent awards and patents of greater originality. Short-term incentives appear to be unrelated to measures of innovation. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.89.4.634
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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 89 (2007)
Issue (Month): 4 (November)
Pages: 634-644

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Handle: RePEc:tpr:restat:v:89:y:2007:i:4:p:634-644

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References

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Citations

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Cited by:
  1. Barros, Henrique M. & Lazzarini, Sergio G., 2009. "Meritocracy and Innovation: Is There a Link? Empirical Evidence from Firms in Brazil," Insper Working Papers wpe_162, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  2. Fredrik Andersson & Matthew Freedman & John Haltiwanger & Julia Lane & Kathryn Shaw, 2009. "Reaching for the Stars: Who Pays for Talent in Innovative Industries?," Economic Journal, Royal Economic Society, vol. 119(538), pages F308-F332, 06.
  3. Cui, Victor & Ding, Waverly W. & Yanadori, Yoshio, 2011. "Compensation Structure and the Creation of Exploratory Knowledge in Technology Firms," Institute for Research on Labor and Employment, Working Paper Series qt4f7671kn, Institute of Industrial Relations, UC Berkeley.
  4. Nambisan, Satish, 2013. "Industry technical committees, technological distance, and innovation performance," Research Policy, Elsevier, vol. 42(4), pages 928-940.
  5. Ramana Nanda & Matthew Rhodes-Kropf, 2012. "Innovation and the Financial Guillotine," Harvard Business School Working Papers 13-038, Harvard Business School, revised Dec 2012.
  6. Toivanen, Otto & Väänänen, Lotta, 2010. "Returns to Inventors," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 309, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Shahbaz Sheikh, 2012. "Do CEO compensation incentives affect firm innovation? Purpose–The purpose of this paper is to examine if the structure and design of CEO compensation has any effect on firm innovation. It further i," Review of Accounting and Finance, Emerald Group Publishing, vol. 1(1), pages 4-39, February.
  8. Guillaume Garnotel & Patrick Loux, 2011. "Définition des bonus des dirigeants et performance des entreprises de haute technologie," Revue Finance Contrôle Stratégie, revues.org, vol. 14(3), pages 119-150, September.
  9. Evans, Shane, 2010. "Innovation contracts with leakage through licensing," Working Papers 10282, University of Tasmania, School of Economics and Finance, revised 05 Oct 2010.
  10. Claire Bonnard, 2011. "Les incitations à l'innovation dans le secteur privé," Post-Print halshs-00599700, HAL.
  11. Chakraborty, Atreya & Rzakhanov, Zaur & Sheikh, Shahbaz, 2014. "Antitakeover provisions, managerial entrenchment and firm innovation," Journal of Economics and Business, Elsevier, vol. 72(C), pages 30-43.
  12. N. Lacetera & L. Zirulia, 2008. "Knowledge Spillovers, Competition, and R&D Incentive Contracts," Working Papers 624, Dipartimento Scienze Economiche, Universita' di Bologna.
  13. Leiponen, Aija & Helfat, Constance E., 2006. "When Does Distributed Innovation Activity Make Sense? Location, Decentralization, and Innovation Success," Discussion Papers 1063, The Research Institute of the Finnish Economy.
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  15. Erika Harden & Douglas L. Kruse & Joseph R. Blasi, 2008. "Who Has a Better Idea? Innovation, Shared Capitalism, and HR Policies," NBER Working Papers 14234, National Bureau of Economic Research, Inc.

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