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

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  • Mariagiovanna Baccara
  • Ronny Razin

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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Suggested Citation

  • Mariagiovanna Baccara & Ronny Razin, 2004. "Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights," Levine's Working Paper Archive 122247000000000194, David K. Levine.
  • Handle: RePEc:cla:levarc:122247000000000194
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ramon Marimon & Vincenzo Quadrini, 2005. "Competition, innovation and growth with limited commitment," Economics Working Papers 933, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Luca Colombo & Herbert Dawid & Kordian Kabus, 2012. "When do thick venture capital markets foster innovation? An evolutionary analysis," Journal of Evolutionary Economics, Springer, vol. 22(1), pages 79-108, January.
    3. Thomas Hellmann & Enrico Perotti, 2011. "The Circulation of Ideas in Firms and Markets," Management Science, INFORMS, vol. 57(10), pages 1813-1826, October.
    4. Colombo, Luca & Dawid, Herbert, 2016. "Complementary assets, start-ups and incentives to innovate," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 177-190.

    More about this item

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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