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Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights

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  • Baccara, Mariagiovanna
  • Razin, Ronny

Abstract

In this Paper we analyse the effects of information leakage on the incentives to innovate in firms. We analyse a situation in which an employee in a firm is inspired with a new idea for a product. In a framework in which Intellectual Property Rights on ideas are absent, we analyse the employee’s decision of whether to disclose the idea within the firm or to form a spin-out. We next look at the shareholders of the original firm and analyse their incentives to promote creativity and innovations among employees. Our analysis highlights the effects of the distribution of shares within the firm and the firm’s size on the incentives and behaviour of firms towards innovation. In particular we highlight the following findings. (i) Often employees may not implement an idea either within or outside the firm. (ii) The ownership structure affects the incentives to promote innovation in firms. (iii) Firm shareholders may have incentives to curtail innovation even if these innovations are expected to be revealed within the firm. (iv) Firms may buy-off potential innovative agents, by providing them with compensation plans that dominate leaving the firm, or revealing new ideas within the firm. (v) Information leakage concerns affect both the hiring and the information provision decisions of the firm.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4466.

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Date of creation: Jul 2004
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Handle: RePEc:cpr:ceprdp:4466

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Keywords: corporate governance; information leakage; innovation; spin-outs;

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References

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Cited by:
  1. Ramon Marimon & Vincenzo Quadrini, 2006. "Competition, Innovation and Growth with Limited Commitment," NBER Working Papers 12474, National Bureau of Economic Research, Inc.
  2. Thomas Hellman & Enrico Perotti, 2010. "The Circulation of Ideas in Firms and Markets," Working Papers 2010.47, Fondazione Eni Enrico Mattei.
  3. Luca Colombo & Herbert Dawid & Kordian Kabus, 2007. "When do Thick Venture Capital Markets Foster Innovation? An Evolutionary Analysis," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0074, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  4. Luca Colombo & Herbert Dawid, 2008. "Complementary Assets, Start-Ups and Incentives to Innovate," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0080, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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