The spatial distribution of innovation: evidence on the role of academic quality for seven European countries

The quality of academic research and research undertaken at public laboratories is an important determinant of successful technology transfer. Corporate innovativeness may benefit considerably from scientific discoveries at universities or public laboratories and from the availability of locally well-trained scientists and graduates. The extent to which quality matters is investigated for 86 European regions in seven countries between 1997 and 2007. We find that regions hosting research departments at the forefront of science produce significantly more inventions and more innovations, whereas the mere presence of R&D personnel in universities has no significant impact. The production of patents in high-technology domains instead does benefit from the presence of R&D personnel in public laboratories. These results complement the existing evidence on the relationship between public research and spatial distribution of innovation.     

Knowledge appropriability, firm size, and growth

Empirical evidence shows that the number of patents per R&D dollar declines with firm size. In this paper, we propose a Schumpeterian growth model that accounts for this evidence. We analyze an economy with firms that engage in cost-reducing innovation resulting from the accumulation of both codified and tacit knowledge: the former occurs through the purchase of patents, while the latter is the result of R&D conducted in-house by firms. We study the relation between knowledge appropriability and market structure, and we show that a shift from patents to in-house research occurs as firm size gets larger. Since innovation statistics concentrate mainly on patents, this process of research reallocation results into an under-estimation of innovative activity and is responsible for the declining ratio of patents to R&D expenditure. Survey data on UK-based firms provide support to our results.     

The impact of public R&D expenditure on business R&D*

This paper attempts to quantify the aggregate net effect of government funding on business R&D in 17 OECD Member countries over the past two decades. Grants, procurement, tax incentives and direct performance of research (in public laboratories or universities) are the major policy tools in the field. The major results of the study are the following: Direct government funding of R&D performed by firms has a positive effect on business financed R&D (except if the funding is targeted towards defence activities). Tax incentives have an immediate and positive effect on business-financed R&D; Direct funding as well as tax incentives are more effective when they are stable over time: firms do not invest in additional R&D if they are uncertain of the durability of the government support; Direct government funding and R&D tax incentives are substitutes: increased intensity of one reduces the effect of the other on business R&D; The stimulating effect of government funding varies with respect to its generosity: it increases up to a certain threshold (about 10% of business R&D) and then decreases beyond; Defence research performed in public laboratories and universities crowds out private R&D; Civilian public research is neutral for business R&D. * We thank the participants to various seminars, including the OECD Committee for Scientific and Technology Policy and the NBER 2000 Summer Institute on Productivity for helpful comments and suggestions. All opinions expressed in this article are those of the authors and do not reflect necessarily the views of the OECD or Université Libre de Bruxelles.     

Founders’ human capital and external knowledge sourcing: Exploring the absorptive capacity of start-up firms

ABSTRACT

This study highlights the importance of founders’ human capital on firms’ absorptive capacity for explaining the external knowledge sourcing (licensing-in and joint R&D) of start-up firms, using panel data from original questionnaire surveys conducted in Japan. The results of a probit model with an endogenous regressor show that firms managed by founders with a high level of specific human capital, measured as prior innovation experience and industry-specific work experience, tend to engage in external knowledge sourcing because of their superior absorptive capacity. The findings indicate that this type of human capital also promotes research and development (R&D) investment. Contrariwise, this study finds that firms managed by founders with a high level of general human capital, measured as educational attainment, tend to invest more in R&D, which enhances their absorptive capacity and thereby promotes external knowledge sourcing. Finally, the implications of these findings are discussed from the perspective of public policy.     

Environmental Research Joint Ventures under Emission Taxes

The effect of environmentalpolicy depends crucially on the strategicbehavior of firms. Firms can undertakepollution abatement innovation cooperativelythrough environmental R&D joint ventures(RJVs). Environmental RJVs have not onlyenvironmental but also economic impacts. Threetypes of environmental RJV are discussed inthis paper: R&D cartelization in which firmschoose R&D efforts to maximize the jointprofit, RJV competition in which firms sharethe R&D fruits to maximize their own profits,and RJV cartelization in which firms share R&Dfruits and maximize the joint profit. An R&Dcartelization minimizes output quantities,maximizes the total emission, and minimizes thesocial surplus. An RJV cartelization with asufficiently high spillover coefficientmaximizes R&D efforts, minimizes the totalemission, and maximizes the social surplus.     

Multimarket contact and inter-firm cooperation in R&D

Research joint ventures (RJVs) have been widely acclaimed for their alleged ability to restore private incentives to undertake R&D. Economists have, however, also sounded the alarm concerning the opportunities RJVs may create for collusion between partners. The danger of anti-competitive behavior increases significantly when repeated R&D collaboration occurs between firms that also “meet” in many product markets. This phenomenon is shown to be present in a large set of U.S.-based RJVs. The question is about the incentive trade-off: Are the alleged advantages of RJVs in terms of enhancing incentives for R&D sufficient to overcome the potential disadvantages in terms of decreasing incentives for R&D due to simultaneous multiproject and multimarket contact? Significant foreign participation, high technological and market uncertainties, and the set up of “porous” RJVs may operate as a check to anti-competitive behavior.     

Unsuccessful patent application and cooperative R&;D

We show that uncertainty in patent approvals may induce the firms to do cooperative R&D. With an exogenous probability of success in patent application, we show that, if all firms apply for patents under non-cooperative R&D, the firms prefer cooperative R&D than non-cooperative R&D for moderate (high) probabilities of success in patent applications, if the cost of patenting is small (large). We also show the implications of entry of non-innovating firms and endogenous probability of success in patent applications.      

Strategic technology editing of the patent stage: lesson from a case of inkjet printer development

Patents are conventionally regarded as representing post-procurement of rights based on results of research and development (R&D). Patents can also be regarded as factors promoting R&D itself. In this study, the author examines the strategic meaning of patents in R&D through analyses of the R&D processes at Canon Inc., which is widely considered to submit patents strategically. The author identified characteristic behaviour related to patent acquisition in the R&D of inkjet printers. Canon constructed a strong patent group precisely by editing patents submitted earlier. Characteristic patent submissions were also identified: they elevated the obtained R&D results to higher concepts as milestones of R&D. These findings are discussed from the viewpoint of the meaning of patents for R&D and the possibility of effective R&D at the patent stage.     

Patents,technological inputs and spillovers among regions

This article analyses the importance of different technological inputs (R&D and human capital) and different spillovers in explaining the differences in patenting among Spanish regions in the period 1986 to 2003. The analysis is based on the estimation of a knowledge production function. A region's own R&D activities and human capital are observed to have a positive significant effect on innovation output, measured by the number of patents. R&D spillovers weighted by the distance and the volume of trade flows between regions cause positive effects on a region's patents. However, distance matters more than the intensity of trade flows and the R&D spillover effects between regions are bounded: spillovers from closer regions perform better than spillovers from distant regions. On the opposite side, human capital spillovers do not cause any effect outside the region itself.     

An empirical analysis of firm process and product patenting

This paper presents an empriical study of the determinants of firm patenting. Since industrial research and development (R&D) encompasses a variety of activities, this study distinguishes between patents on process innovations and patents on product innovations. The property rights provided by a patent may differ between process and product patents, which suggests that the determinants of process innovations and product innovations may difer as well.

Several recent studies have distinguished between research directed toward process innovations and research directed toward product innovations. Scherer (1983a) included measures of process R&D spending and product R&D spending in regressions for inter-industry differences in productivity growth. Link and Lunn (1984) found that the returns to process-related R&D activity exceed the returns to product-related R&D activity. Link (1982) found inter-firm differences in the allocation of R&D spending for process innovations and product innovations. Lunn (1986) found differences in the determinants, as well as the effects, of process patenting and product patenting at the industry level. This paper examines whether the determinants of product and process patenting differ at the firm level.     

An empirical analysis of patents flows and R&D flows around the world

In this article, we empirically investigate the effect of Research and Development (R&D) flows on patent flows around the world. We do this using an unbalanced panel consisting primarily of Organization for Economic Co-operation and Development (OECD) countries that have both patent and R&D expenditure information broken down by domestic and foreign sources. Our analysis shows that even among a fairly homogeneous group of countries, the sources of patents and R&D differ substantially. Using a dynamic panel framework, we find that domestic R&D per capita increases domestic patents per capita only for the European Patent Convention (EPC) countries that already have a decentralized approach to innovation. Foreign R&D per capita increases foreign patents per capita in all countries even though foreign R&D constitutes a very small fraction of total R&D. We find that some of these differences can be attributed to the locations of the patent applications, including those to the European Patent Office (EPO), United States Patent and Trademark Office (USPTO) and triadic patent applications to the EPO, USPTO and Japan Patent Office (JPO) simultaneously.     

On the incentives for cooperative research

This paper analyzes incentives for cooperative research for firms competing in the product market. Contrary to the literature, we portray situations to show that non-cooperative R&D can occur even if the probability of success in R&D is large. We then model synergy in cooperative R&D and show that when the innovation size is large, cooperative research is likely to occur.     

The 1988 EC directive on biotechnological inventions and the UK biotechnology industry

The article, based on a recent survey of UK biotechnology companies, highlights the complex interaction between the organization of R&D and the patenting policy in the biotech industry. Some of the more interesting findings include: the limited extent of private investment in biotechnological R&D; the existence of two markedly different R&D strategies (product- vs. process-based); the distinction between first- and second-generation patents and their effects on market structure. The core of the article deals with the likely effects on patenting behaviour of changes in patent law - both as envisaged in the October 1988 Directive and as suggested by recent theoretical research on the economics of patents. The Directive in its current form is reported to have no discernible effect on the extent and organization of R&D, whereas the industry's response to a series of hypothetical changes suggests that any definition or patentability standards has far-reaching repercussions on: (1) the allocation of resources between research and development; (2) the conditions of entry into the industry; (3) the balance of bargaining power between firms of unequal size (or pursuing different R&D strategies); and ultimately (4) the allocation of technological surplus between consumers and producers.     

Subsidizing cooperative and noncooperative R&D in duopoly with spillovers

Comparing the effect on private R&D investments of allowing firms to cooperate in R&D with that of providing R&D subsidies reveals that in general the latter policy is more effective than the former in promoting R&D activity. Analyzing the implementation of both policies simultaneously reveals that subsidizing cooperative and noncooperative R&D leads to the same market outcome. The preferred R&D-stimulating policy is to subsidize optimally an agreement according to which firms only share the outcomes of their independent research.     

R&D boundaries of the firm: An estimation of the double-hurdle model on commissioned R&D,joint R&D,and licensing in Japan

This paper studies the firm’s decisions on in-house R&D and its procurement from outside through commissioned R&D, joint R&D, and technology acquisitions (i.e., licensing-in). Using the data about 14,000 manufacturing firms in Japan, we estimate a modified double-hurdle model in which the first hurdle determines whether the firm should perform any R&D at all and the second hurdle determines whether (and how much) it should perform each mode of procured R&D. The results generally support the two major theories—the transaction cost theory and the capability theory. The estimated positive effects of firm size, in-house R&D intensity, diversification, and vertical integration support the hypothesis that capability is needed for procured R&D, while the estimated positive effect of the index of appropriability by patents supports the hypothesis that this appropriability reduces transaction costs. In addition, we found that information flow from scientific sources and that from transaction-based sources affect the three modes of procured R&D differently.     

Factor analysis and structural equation model for patent analysis: a case study of Apple’s technology

In this study, we analyse patent data for technology analysis (TA) because patents are rich in information on developed technology. The results of TA can be used to perform more efficient research and development (R&D) planning. Most companies are trying to develop new and innovative technologies to improve their competitive positions. Research involving TA has been introduced in a variety of fields. Most of the published research analysed original variables related to a target technology. However, it is necessary to analyse the latent variables as well as the original variables included in the technology to achieve a better TA model. Therefore, we propose a factor analysis and a structural equation model for patent analysis. In addition, we use Apple’s patents to determine the target technology. In our case study, we analyse Apple’s technologies by latent variables. Our case study shows how the proposed model is applied to Apple’s R&D planning.     

Demand Shift Effect of R&;D and the R&;D Organization

We assume that R&D investment by a firm improves the quality of the product. This is reflected in an upward shift of the demand function. Firms can do R&D either independently or cooperatively. We show that cooperative research strictly dominates non-cooperative research, both in terms of profitability and welfare. Also, R&D investment by each firm under cooperative research is larger for a relatively high R&D output elasticity. The higher the degree of product differentiation and/or larger the R&D output elasticity is, the larger the increase in quality level under cooperative research, compared to non-cooperative research, will be.     

Learning from successes and failures in pharmaceutical R&D

In this paper, we build a cumulative innovation model to understand the role of both success and failure in the learning dynamics that characterize pharmaceutical R&D. We test the prediction of our model by means of a unique dataset that combines patent information with R&D projects, thus distinguishing patents related to successfully marketed products from those covering candidate drugs that failed in clinical trials. Results confirm model predictions showing that patents associated with successfully completed projects receive more citations than those associated with failed projects. However, we also show that failed projects can be in turn cited more often than patents lacking clinical or preclinical information. We further explore the ‘black box’ of innovation, providing evidence that both successes and failures contribute to R&D investment decisions and knowledge dynamics in science-driven sectors.     

Market structure and R&D investment spillovers

This paper examines research and development (R&D) investment spillovers across different market structures. In particular, we extend the recent work in Matsumura et al. (2013) to incorporate R&D investment spillovers. When the market is a duopoly, noncooperative (cooperative) R&D investment is preferred for small (large) spillovers of less (more) than half. We show that as a market structure becomes more competitive, noncooperative R&D investment is more likely to be preferred. Moreover, noncooperative R&D is not always decreasing with the intensity of competition, even though it is ultimately zero with perfect competition. Our theoretical results fit well with existing empirical findings.     

Cooperative R&D and Commitment to A Policy of Know-how Trading

In this paper, we develop a theoretical framework to investigate the impact of adopting a strategy of know-how trading on the degree of research and development (R&D) cooperation. We show that the consequences of cooperation in know-how sharing under the conditions of the model are similar to a policy of cooperation in R&D investments in areas with large spillovers. An industry-wide policy of cooperation among competitors with respect to R&D investment and sharing would simply result in maximal joint profits. This cooperative R&D outcome could be generalized to any degree of spillover other than 100%. In this paper, the commitment to a policy of know-how trading by the participants in an industry is explained by the firm’s attempt to induce the equilibrium of a single industry-wide cooperative research joint venture. In a repeated game framework, we show that pre-commitments by non-cooperative firms to disclose their own know-how to the industry can be effective in inducing cooperative R&D investments by the participants.