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Innovation and Incentives: Evidence from Corporate R&D

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Author Info
Josh Lerner
Julie Wulf

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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 (e.g. stock options and restricted stock) are associated with more heavily cited patents. These incentives also appear to be somewhat associated with more patent filings and patents of greater generality. We address endogeniety concerns in a variety of ways, including examining the impact of compensation for other key managers and utilizing an instrument based on spawning activity in the region. While we cannot determine whether the effect is due to better project selection or better people selection, the results continue to be consistent with our interpretation that performance pay of corporate R&D heads is associated with more innovative firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11944.

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Date of creation: Jan 2006
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Handle: RePEc:nbr:nberwo:11944

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O3 - Economic Development, Technological Change, and Growth - - Technological Change
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fredrik Andersson & Matthew Freedman & John C. Haltiwanger & Julia Lane & Kathryn L. Shaw, 2006. "Reaching for the Stars: Who Pays for Talent in Innovative Industries?," NBER Working Papers 12435, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Aija Leiponen & Constance E. Helfat, 2006. "When Does Distributed Innovation Activity Make Sense? Location, Decentralization, and Innovation Success," Discussion Papers 1063, The Research Institute of the Finnish Economy. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
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