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Inventors, Firms, and the Market for Technology in the Late Nineteenth and Early Twentieth Centuries

In: Learning by Doing in Markets, Firms, and Countries


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  • Naomi R. Lamoreaux
  • Kenneth L. Sokoloff


Recent scholarly literature explains the spread of in-house research labs during the early 20th century by pointing to the information problems involved in contracting for technology. We argue that these difficulties have been overemphasized and that in fact a substantial trade in patented inventions developed over the course of the 19th century, much of it the form of transactions conducted at arms-length through the market. This expansion of trade in technology made possible a growing division of labor, as inventors increasingly took advantage of their greater ability to sell of rights to patented technologies and focused their energy and resources on invention itself. Firms responded to the expansion of this trade by developing ways to to learn about and assess externally generated inventions. Although large firms were beginning to invest in their internal inventive capabilities, in doing so they faced many significant problems. They had to overcome resistance to contracts requiring employees to sign over patents to their employers, and they had to reduce the high turnover rates that made such requirements effectively unenforceable. The increased costs of inventive activity and the greater risks borne by independent inventors by the early 20th century helped firms make their case. But there was a lot of organizational learning to do. Hence where other scholars have emphasized the difficulties of contracting for technology in the market and the relative ease of integrating invention and production within the firm, we reverse the story. Economic actors at that time had a lot of experience contracting for new technological ideas in the market; what they had to spend a great deal of time and energy learning was managing creative individuals within the firm.

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  • Naomi R. Lamoreaux & Daniel M. G. Raff & Peter Temin, 1999. "Learning by Doing in Markets, Firms, and Countries," NBER Books, National Bureau of Economic Research, Inc, number lamo99-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10229.

    Handle: RePEc:nbr:nberch:10229

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    Cited by:
    1. Stefano Breschi & Francesco Lissoni, 2001. "Knowledge spillovers and local innovation systems: a critical survey," LIUC Papers in Economics, Cattaneo University (LIUC) 84, Cattaneo University (LIUC).
    2. Kim, Sukkoo, 1999. "The Rise of Multiunit Firms in U.S. Manufacturing," Explorations in Economic History, Elsevier, Elsevier, vol. 36(4), pages 360-386, October.
    3. N. Lacetera & L. Zirulia, 2008. "Knowledge Spillovers, Competition, and R&D Incentive Contracts," Working Papers 624, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Sumner J La Croix & Denise Eby Konan, 2006. "Have Developing Countries Gained From the Marriage Between Trade Agreements and Intellectual Property Rights?," Working Papers, University of Hawaii at Manoa, Department of Economics 200605, University of Hawaii at Manoa, Department of Economics.
    5. Nicola Lacetera & Lorenzo Zirulia, 2011. "Individual Preferences, Organization, and Competition in a Model of R&D Incentive Provision," NBER Working Papers 17031, National Bureau of Economic Research, Inc.
    6. Naomi R. Lamoreaux & Kenneth L. Sokoloff & Dhanoos Sutthiphisal, 2009. "The Reorganization of Inventive Activity in the United States during the Early Twentieth Century," NBER Working Papers 15440, National Bureau of Economic Research, Inc.
    7. PĂ©nin, Julien, 2012. "Strategic uses of patents in markets for technology: A story of fabless firms, brokers and trolls," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(2), pages 633-641.
    8. Giovanni Guastella & Frank van Oort, 2011. "On specifying heterogeneity in knowledge production functions," ERSA conference papers ersa11p1114, European Regional Science Association.
    9. Rooij, Arjan van, 2005. "Why do firms acquire technology?: The example of DSM's ammonia plants, 1925-1970," Research Policy, Elsevier, Elsevier, vol. 34(6), pages 836-851, August.
    10. B. Zorina Khan & Kenneth L. Sokoloff, 2001. "The Early Development of Intellectual Property Institutions in the United States," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(3), pages 233-246, Summer.
    11. Shih-tse Lo & Dhanoos Sutthiphisal, 2008. "Crossover Inventions And Knowledge Diffusion Of General Purpose Technologies? Evidence From The Electrical Technology," NBER Working Papers 14043, National Bureau of Economic Research, Inc.


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