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Patents, Real Options and Firm Performance

  • Nicholas Bloom

    (Institute for Fiscal Studies)

  • John Van Reenen

    (Institute for Fiscal Studies and University College London)

Analysing the new IFS-Leverhulme database on over 200 major British firms since 1968 we show that patents have an economically and statistically significant impact on firm-level productivity and market value. While patenting feeds into market values immediately it appears to have a slower effect on productivity. This generates valuable real options because patents provide exclusive rights to develop new innovations, enabling firms to delay investments. Higher market uncertainty, which increases the value of real options, reduces the impact of new patents on productivity. If the government"s policy to reduce uncertainty is successful then this should increase the productivity of Britain"s knowledge capital. Copyright Royal Economic Society 2002.

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Article provided by Royal Economic Society in its journal Economic Journal.

Volume (Year): 112 (2002)
Issue (Month): 478 (March)
Pages: C97-C116

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Handle: RePEc:ecj:econjl:v:112:y:2002:i:478:p:c97-c116
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