B04
Firm Size, Ownership, and Innovation
Discussion Papers

Discussion Paper No. 177
August 5, 2019

Should There Be Lower Taxes On Patent Income?

Authors:

Gaessler, Fabian (MPI-IC Munich)
Hall, Bronwyn H. (MPI-IC Munich)
Harhoff, Dietmar (MPI-IC Munich)

Abstract:

A "patent box" is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patents filed at the European Patent Office, including information on ownership transfers pre- and post-grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.

Keywords:

patent box; ip box; innovation tax; beps; epo; invention incentive; patent ownership

JEL-Classification:

H32; H34; K34; O34

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Discussion Paper No. 176
August 5, 2019

Patents, Data Exclusivity, and the Development of New Drugs

Authors:

Gaessler, Fabian (MPI-IC Munich)
Wagner, Stefan (ESMT Berlin)

Abstract:

Pharmaceutical firms typically enjoy market exclusivity for new drugs from concurrent protection of the underlying invention (through patents) and the clinical trials data submitted for market approval (through data exclusivity). Patent invalidation during drug development renders data exclusivity the sole source of protection and shifts the period of market exclusivity at the project level. In instrumental variables regressions we quantify the effect of a one-year reduction in expected market exclusivity on the likelihood of drug commercialization. The effect is largely driven by patent invalidations early in the drug development process and by the responses of large originators. We hereby provide first estimates of the responsiveness of R&D investments to market exclusivity expectations.

Keywords:

patents; drugs; data exclusivity; clinical trials

JEL-Classification:

K41; L24; L65; O31; O32; O34

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Discussion Paper No. 163
June 28, 2019

Firm Organization with Multiple Establishments

Authors:

Gumpert, Anna (LMU Munich)
Steimer, Henrike (Stanford GSB)
Antoni, Manfred (Institut für Arbeitsmarkt- und Berufsforschung)

Abstract:

How do geographic frictions affect firm organization? We show theoretically and empirically that geographic frictions increase the use of middle managers in multi-establishment firms. In our model, we assume that a CEO's time is a resource in limited supply, shared across headquarters and establishments. Geographic frictions increase the costs of accessing the CEO. Hiring middle managers at one establishment substitutes for CEO time, which is reallocated across all establishments. Consequently, geographic frictions between the headquarters and one establishment affect the organization of all establishments of a firm. Our model is consistent with novel facts about multi-establishment firm organization that we document using administrative data from Germany. We exploit the opening of high-speed train routes to show that not only the establishments directly affected by faster travel times but also the other establishments of the firm adjust their organization. Our findings imply that local conditions propagate across space through firm organization.

Keywords:

firm organization; multi-establishment firm; knowledge hierarchy; geography

JEL-Classification:

D21; D22; D24

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Discussion Paper No. 155
May 24, 2019

The Disciplinary Effect of Post-Grant Review
Causal Evidence From European Patent Opposition

Authors:

Nagler, Markus (LMU Munich)
Sorg, Stefan (MPI for Innovation and Competition)

Abstract:

We study the causal impact of invalidating marginally valid patents during post-grant opposition at the European Patent Office on affected inventors' subsequent patenting. We exploit exogenous variation in invalidation by leveraging the participation of a patent's original examiner in the opposition division as an instrument. We find a disciplinary effect of invalidation: Affected inventors file 20% fewer patent applications in the decade after the decision. This effect is entirely driven by a reduction in low-quality filings, i.e., filings that examiners associate with prior art that threatens the application's novelty or inventive step. We do not observe shifts into national patenting.

Keywords:

inventors; marginal patents; patent invalidation; patent opposition; postgrant review; epo; innovation

JEL-Classification:

O31; O34

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Discussion Paper No. 144
February 27, 2019

Job Creation in Tight and Slack Labor Markets

Authors:
Buchheim, Lukas (LMU Munich)
Watzinger, Martin (LMU Munich)
Wilhelm, Matthias (LMU Munich)
Abstract:

Do investment programs create more jobs in tight or in slack labor markets? We study this question using data from a large, long-term photovoltaic investment scheme in Germany. Comparing counties with high and low unemployment both over time and across space, we find that photovoltaic installations created at least twice as many jobs in slack than in tight labor markets. Our results suggest that the differences in job-creation are not driven by changes in the composition or prices of investment, capital-labor substitution, or regional migration. This leaves crowding-out as the most plausible mechanism.

Keywords:
local employment multiplier; state-dependent multiplier
JEL-Classification:
E24; E62; J23; R23
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Discussion Paper No. 137
January 8, 2019

Weak Markets, Strong Teachers: Recession At Career Start and Teacher Effectiveness

Authors:

Nagler, Markus (LMU Munich)
Piopiunik, Marc (ifo Institute)
West, Martin R. (Harvard University)

Abstract:

How do alternative job opportunities affect teacher quality? We provide causal evidence on this question by exploiting business cycle conditions at career start as a source of exogenous variation in the outside options of potential teachers. Unlike prior research, we directly assess teacher quality with value-added measures of impacts on student test scores, using administrative data on over 30,000 teachers in Florida public schools. Consistent with a Roy model of occupational choice, teachers entering the profession during recessions are significantly more effective in raising student test scores. Results are supported by robustness tests and unlikely to be driven by differential attrition.

Keywords:

JEL-Classification:

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Discussion Paper No. 136
January 8, 2019

Disclosure and Subsequent Innovation: Evidence From the Patent Depository Library Program

Authors:

Furman, Jeffrey L. (Boston University Questrom School of Business)
Nagler, Markus (LMU Munich)
Watzinger, Martin (LMU Munich)

Abstract:

How important is information disclosure through patents for subsequent innovation? To answer this question, we examine the expansion of the USPTO Patent Library system after 1975. Before the Internet, patent libraries gave inventors access to patent documents. We find that after patent library opening, local patenting increases by 17% relative to control regions. Additional analyses suggest that the disclosure of technical information is the mechanism underlying this effect: inventors start to cite more distant prior art and the effect ceases after the introduction of the Internet. Our analyses thus provide evidence that disclosure plays an important role in cumulative innovation.

Keywords:

JEL-Classification:

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Discussion Paper No. 55
November 6, 2017

The Life-Cycle Dynamics of Exporters and Multinational Firms

Authors:

Gumpert, Anna (LMU Munich)
Moxnes, Andreas (University of Oslo)
Ramondo, Natalia (University of California at San Diego)
Tintelnot, Felix (University of Chicago)

Abstract:

This paper studies the life-cycle dynamics of exporters and multinational enterprises (MNEs). We present a dynamic model of trade and MNE activity in which the mode of serving a market depends on the well-known proximity-concentration tradeoff. We show that the option of performing MNE activities in the model produces life-cycle patterns for exporters that differ from those in an export-only model. Calibrating our model to rich firm-level data from France and Norway, our main quantitative finding is that a reduction in trade costs triggers much larger responses in growth rates and exit rates, for young exporters, in the model with MNEs than in the model without MNEs. We also show that the model is largely consistent with a set of new facts on the joint life-cycle dynamic behavior of exporters and MNEs.

Keywords:

international trade; exporters; multinational firm; markov process; sunk cost; proximity-concentration tradeoff; trade liberalization

JEL-Classification:

F01; F02

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Discussion Paper No. 46
September 13, 2017

Measuring the Spillovers of Venture Capital

Authors:

Schnitzer, Monika (LMU München)
Watzinger, Martin (LMU München)

Abstract:

We provide the first measurement of knowledge spillovers from venture capital-financed companies onto the patenting activities of other companies. On average, these spillovers are nine times larger than those generated by the R&D investment of established companies. Spillover effects are larger in complex product industries than in discrete product industries. Start-ups with experienced inventors holding a patent at the time of receiving the first round of investment produce the largest spillovers, indicating that venture capital fosters the commercialization of technologies. Methodologically, we contribute by developing a novel definition of the spillover pool, combining citation-based and technological proximity-based approaches.

Keywords:

venture capital, spillovers, innovation

JEL-Classification:

G24; O30; O31; O32

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Discussion Paper No. 30
April 26, 2017

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

Authors:

Bock, Carolin (TU Darmstadt)
Watzinger, Martin (University of Munich)

Abstract:

Our study analyzes the effect of the capital gains tax on the individual investment decisions of venture capitalists. By doing so, we are able to study the decisions for a sample of 76,852 funding rounds in 32 countries from 2000 to 2012. Our results support the predictions of the theoretical model that higher capital gains tax rates are associated with fewer start-ups financed and a lower probability of receiving follow-up funding. However, the results concerning the effect on the probability of success of start-ups show that a higher tax burden is associated with a higher probability of eventual start-up success.

Keywords:

Venture Capital; Capital Gains Tax; Selection Effect; Follow-up Funding; Innovation

JEL-Classification:

G24; H25; H32

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