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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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  1. Bronwyn H. Hall, Adam Jaffe and Manuel Trajtenberg., 2000. "Market Value and Patent Citations: A First Look," Economics Working Papers E00-277, University of California at Berkeley.
  2. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
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  6. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  7. Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 581-593.
  8. Nick Bloom & John Van Reenen & Stephen Bond, 2006. "Uncertainty and Investment Dynamics," NBER Working Papers 12383, National Bureau of Economic Research, Inc.
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  18. Nicholas Bloom & Steve Bond & John Van Reenen, 2001. "The dynamics of investment under uncertainty," IFS Working Papers W01/05, Institute for Fiscal Studies.
  19. repec:fth:harver:1473 is not listed on IDEAS
  20. Cabalero, R.J., 1997. "Aggregaete Investment," Working papers 97-20, Massachusetts Institute of Technology (MIT), Department of Economics.
  21. Adam Jaffe & Manuel Trajtenberg, 1999. "International Knowledge Flows: Evidence From Patent Citations," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 8(1-2), pages 105-136.
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  23. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
  24. Nicholas Bloom & John Van Reenen, 2000. "Patents, productivity and market value: evidence from a panel of UK firms," IFS Working Papers W00/21, Institute for Fiscal Studies.
  25. Iain Cockburn & Zvi Griliches, 1987. "Industry Effects and Appropriability Measures in the Stock Markets Valuation of R&D and Patents," NBER Working Papers 2465, National Bureau of Economic Research, Inc.
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