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Patent Protection, Market Uncertainty, and R&D Investment

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  • Dirk Czarnitzki

    (K U Leuven, Centre for R&D Monitoring at K U Leuven, Centre for European Economic Research, Centre for Industrial Economics at University of Copenhagen)

  • Andrew A. Toole

    (Resource, Environmental and Science Policy Branch, U.S. Department of Agriculture, Economic Research Service)

Abstract

The main reason governments grant patent protection is to spur innovation. However, the size of the R&D stimulus from patent protection is far from clear because it depends on how effective patents are as a mechanism for appropriating returns. Drawing on real options investment theory, this paper highlights one mechanism through which patents may improve appropriability and stimulate R&D investment: patents reduce the effect of market uncertainty on the firm’s investment decision. We find that firm-level R&D investment falls in response to higher levels of uncertainty, but that patent protection partially mitigates the influence of uncertainty. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

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

Volume (Year): 93 (2011)
Issue (Month): 1 (February)
Pages: 147-159

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Handle: RePEc:tpr:restat:v:93:y:2011:i:1:p:147-159

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References

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  1. Mark Schankerman, 1998. "How Valuable is Patent Protection? Estimates by Technology Field," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 77-107, Spring.
  2. Lanjouw, Jean Olson, 1998. "Patent Protection in the Shadow of Infringement: Simulation Estimations of Patent Value," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 671-710, October.
  3. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-48, September.
  4. Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, Department of Economics, University of Kent.
  5. Sunil Kanwar & Robert Evenson, 2003. "Does intellectual property protection spur technological change?," Oxford Economic Papers, Oxford University Press, vol. 55(2), pages 235-264, April.
  6. Goel, Rajeev K. & Ram, Rati, 2001. "Irreversibility of R&D investment and the adverse effect of uncertainty: Evidence from the OECD countries," Economics Letters, Elsevier, vol. 71(2), pages 287-291, May.
  7. Arora, Ashish & Ceccagnoli, Marco & Cohen, Wesley M., 2008. "R&D and the patent premium," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1153-1179, September.
  8. Wesley M. Cohen, 2005. "Patents and Appropriation: Concerns and Evidence-super-1," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 57-71, 01.
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Citations

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Cited by:
  1. Czarnitzki, Dirk & Lopes-Bento, Cindy, 2013. "Value for money? New microeconometric evidence on public R&D grants in Flanders," Research Policy, Elsevier, vol. 42(1), pages 76-89.
  2. Katrin Hussinger, 2004. "R&D and Subsidies at the Firm Level: An Application of Parametric and Semi-Parametric Two-Step Selection Models," Public Economics 0403005, EconWPA.
  3. Basant, Rakesh & Mishra, Pulak, . "Concentration and Other Determinants of Innovative Efforts in Indian Manufacturing Sector: A Dynamic Panel Data Analysis," IIMA Working Papers WP2013-02-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  4. Balsmeier, Benjamin & Czarnitzki, Dirk, 2014. "How important is industry-specific managerial experience for innovative firm performance?," ZEW Discussion Papers 14-011, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. LOPES BENTO Cindy & CZARNITZKI Dirk, 2012. "Value for money? New microeconomic evidence on public R&D grants in Flanders," CEPS/INSTEAD Working Paper Series 2012-19, CEPS/INSTEAD.
  6. Marco Di Cintio & Emanuele Grassi, 2013. "Uncertainty, flexible labour relations and R&D expenditure," EERI Research Paper Series EERI RP 2013/13, Economics and Econometrics Research Institute (EERI), Brussels.
  7. Barge-Gil, Andrés & López, Alberto, 2012. "R&D Determinants: accounting for the differences between research and development," MPRA Paper 41270, University Library of Munich, Germany.

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