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Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits and Market Value

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  • Adam B. Jaffe

Abstract

This paper presents evidence that firms' patents, profits and market value are systematically related to the"technological position" of firms' research programs. Further, firms are seen to "move" in technology space in response to the pattern of contemporaneous profits at different positions. These movements tend to erode excess returns."Spillovers" of R&D are modelled by examining whether the R&D of neighboring firms in technology space has an observable impact on the firm's R&D success. Firms whose neighbors do much R&D produce more patents per dollar of their own R&D,with a positive interaction that gives high R&D firms the largest benefit from spillovers. In terms of profit and market value, however, their are both positive and negative effects of nearby firms' R&D. The net effect is positive for high R&D firms, but firms with R&D about one standard deviation below the mean are made worse off overall by the R&D of others.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1815.

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Date of creation: Jan 1986
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Publication status: published as American Economic Review, Vo. 76, no. 5, pp. 984-999, December 1986.
Handle: RePEc:nbr:nberwo:1815

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  1. Pakes, Ariel, 1985. "On Patents, R & D, and the Stock Market Rate of Return," Scholarly Articles 3436409, Harvard University Department of Economics.
  2. Ariel Pakes & Mark Schankerman, 1984. "The Rate of Obsolescence of Patents, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Chapters, National Bureau of Economic Research, Inc, in: R & D, Patents, and Productivity, pages 73-88 National Bureau of Economic Research, Inc.
  3. John Bound & Clint Cummins & Zvi Griliches & Bronwyn H. Hall & Adam B. Jaffe, 1984. "Who Does R&D and Who Patents?," NBER Chapters, National Bureau of Economic Research, Inc, in: R & D, Patents, and Productivity, pages 21-54 National Bureau of Economic Research, Inc.
  4. Hirschey, Mark & Wichern, Dean W, 1984. "Accounting and Market-Value Measures of Profitability: Consistency, Determinants, and Uses," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 2(4), pages 375-83, October.
  5. Griliches, Zvi, 1981. "Market value, R&D, and patents," Economics Letters, Elsevier, Elsevier, vol. 7(2), pages 183-187.
  6. Ariel Pakes & Zvi Griliches, 1980. "Patents and R and D at the Firm Level: A First Look," NBER Working Papers 0561, National Bureau of Economic Research, Inc.
  7. Zvi Griliches, 1998. "Productivity and R&D at the Firm Level," NBER Chapters, National Bureau of Economic Research, Inc, in: R&D and Productivity: The Econometric Evidence, pages 100-133 National Bureau of Economic Research, Inc.
  8. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 1-9, April.
  9. Michael A. Salinger, 1984. "Tobin's q, Unionization, and the Concentration-Profits Relationship," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 159-170, Summer.
  10. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 101-21, January.
  11. Bronwyn H. Hall & Zvi Griliches & Jerry A. Hausman, 1983. "Patents and R&D: Searching for a Lag Structure," NBER Working Papers 1227, National Bureau of Economic Research, Inc.
  12. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(4), pages 807-27, August.
  13. White, Halbert, 1982. "Instrumental Variables Regression with Independent Observations," Econometrica, Econometric Society, Econometric Society, vol. 50(2), pages 483-99, March.
  14. Ariel Pakes & Zvi Griliches, 1984. "Patents and R&D at the Firm Level: A First Look," NBER Chapters, National Bureau of Economic Research, Inc, in: R & D, Patents, and Productivity, pages 55-72 National Bureau of Economic Research, Inc.
  15. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, American Economic Association, vol. 73(1), pages 82-97, March.
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