Patent Protection and Innovation Over 150 Years

The paper seeks to understand the impact of the patent system on innovation by examining shifts in the strength of patent protection across sixty countries and a 150-year period. An examination of 177 policy changes reveals that strengthening patent protection appears to have few positive effects on patent applications by entities in the country undertaking the policy change, whether filings in Great Britain or the nation making the policy change are considered. Cross-sectional analyses suggest that the impact of patent protection-enhancing shifts were greater in nations with weaker initial protection and greater economic development, consistent with economic theory. I address concerns about the endogeneity of these changes by employing an instrumental variable approach.

The Government as Venture Capitalist: The Long-Run Effects of the SBIR Program

Public programs to provide early-stage financing to firms, particularly high-technology companies, have become commonplace in the United States and abroad. The long-run effectiveness of these programs, however, has attracted little empirical scrutiny. This paper examines the impact of the largest U.S. public venture capital initiative, the Small Business Innovation Research (SBIR) program, which has provided over $6 billion to small high-technology firms between 1983 and 1995. Using a unique database" of awardees compiled by the U.S. General Accounting Office, I show that SBIR awardees grew significantly faster than a matched set of firms over a ten-year period. The positive effects of SBIR awards were confined to firms based in zip codes with substantial venture capital activity. The findings are consistent with both the corporate finance literature on capital constraints and the growth literature on the importance of localization effects.

Innovation and Incentives: Evidence from Corporate R&D

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.

Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital

In this paper we investigate potential conflicts of interest in the issuance of public securities in a setting analogous to a universal bank, i.e., the underwriting of initial public offerings by investment banks that hold equity in a firm through a venture capital subsidiary. We contrast two hypotheses. Under anticipate the conflict. The suggests that investment banks are able to utilize superior information when they underwrite securities. The evidence supports the rational discounting hypothesis. Initial public offerings that are underwritten by affiliated investment banks perform as well or better than issues of firms in which none of the investment banks held a prior equity position. Investors do, however, require a greater discount at the offering to compensate for potential adverse selection. We also provide evidence that investment bank-affiliated venture firms address the potential conflict by investing in and subsequently underwriting less information-sensitive issues. Our evidence provides no support for the prohibitions on universal banking instituted by the Glass-Steagall Act of 1933.

A Model of Forum Shopping, with Special Reference to Standard Setting Organizations

Owners of intellectual property or mere sponsors of an idea (e.g., authors, security issuers, sponsors of standards) often need to persuade potential buyers or adopters of the worth of their property or idea. To this purpose, they often resort to more or less independent certifiers. This paper analyzes the strategic choice of certifiers in rival and non-rival situations in a three-stage game. First, the owner/sponsor selects among potential certifiers. Certifiers differ in their degree of sympathy towards the owner/sponsor's interests relative to their concern for quality delivered to the users. Second, the certifier studies the offering and renders an opinion. The opinion consists of an endorsement (or lack thereof) and, possibly, some further demands for changes involving prices or offering characteristics. Third, the final users adopt or buy as a function of their perceived utility. In this context, the choice of certifier involves a basic trade-off: trying a tougher certifier reduces the probability of a positive opinion, but makes the users more likely to adopt the offering or willing to pay more for it in case of a positive opinion by the certifier. The paper first analyzes the sponsor's choices of certifier and design, as well as social preferences regarding these choices. More attractive standards lead to more friendly certification and fewer concessions to users. Regulation cannot improve on private choices in case of mildly attractive standards, and partial regulation reduces social welfare in case of attractive standards. Furthermore, the sponsor can costlessly delegate the design choice to the certifier when she can have her preferred choice of certifier, but must make more concessions to users than she would want to if the spectrum of certifiers is limited. The paper then extends the basic model to multiple categories of users, to the downstream presence of the sponsor, and to within-user-group network externalities. Finally, it studies strategic forum shopping by sponsors of competing standards.

Links and Hyperlinks: An Empirical Analysis of Internet Portal Alliances, 1995-1999

This paper examines the structure of over 100 alliances by Internet portals from 1995 to 1999. These alliances were an attractive empirical testing ground because of the large number and heterogeneous nature of the contracts, the high standards for disclosure in the industry, and the careful delineation of ownership, control, exclusivity, and other provisions in the contracts. The division of ownership and allocation of control rights displayed patterns consistent with the predictions in the incomplete contracting literature. Similarly, the exclusivity of the agreements appeared to vary, at least weakly, with the value of the product or service being made available to the portal, consistent with the licensing literature. In other cases, particularly in regard to the differing allocation of ownership and control and the varying completeness of the contracts, the empirical patterns indicated a more complex world than the one that theory led us to anticipate.