B04
Firm Size, Ownership, and Innovation
Discussion Papers

Discussion Paper No. 258
October 6, 2020

Firm Responses to High-Speed Internet

Author:

Steimer, Henrike (LMU Munich)

Abstract:

Does access to the broadband internet stimulate firm growth? In this paper, I analyze within-firm growth of established firms caused by the access to faster internet using geocoded social-security data. I identify firm responses to the access to the first generation of broadband internet and later speed upgrades by exploiting technological peculiarities of the broadband internet network. I find that firms with access to the first generation of broadband internet grow more slowly in employment while keeping their output growth constant. They reduce the share of low-skilled employment in their workforce. Further, I find that firms that receive access to later speed upgrades grow more in revenues and employment than firms that got access to the first generation of broadband internet but not to the upgrades. When getting access to higher internet speed, firms over-proportionally increase medium-skilled employment.

Keywords:

ICT; internet; firm growth; skill-bias; technology

JEL-Classification:

D22; J23; O33

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Discussion Paper No. 229
January 22, 2020

The Transmission of Sectoral Shocks Across the Innovation Network

Author:

Fons-Rosen, Christian (University of California, Merced)
Pu, Zhaoxin (MPI-IC Munich)

Abstract:

Recent innovation literature has documented the benefits of cross-pollination of ideas across a wide set of industries and technology fields in an economy. Industrial and trade policies, by contrast, tend to favor economic specialization through the promotion of selected sectors. In this paper we use a firm-level panel of 13 European countries to assess whether an industry-specific policy propagates across the network of innovating firms through technological linkages. Following the competition shock to the European textile sector, triggered by the 2001 removal of import quotas on Chinese textiles, we find that patenting and knowledge sourcing behavior of non-textile firms are negatively affected. At the aggregate regional level, this indirect effect on non-textile firms can be around three to five times larger than the direct effect.

Keywords:

technological linkages; spillovers; patents; knowledge sourcing; industrial policy

JEL-Classification:

D57; L25; L60; O33; O38

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Discussion Paper No. 220
December 16, 2019

Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation


Author:

Gaessler, Fabian (MPI-IC Munich)
Harhoff, Dietmar (MPI-IC Munich)
Sorg, Stefan (MPI-IC Munich)

Abstract:

We investigate the causal effect of patent rights on cumulative innovation, using large-scale data that approximate the patent universe in its technological and economic variety. We introduce a novel instrumental variable for patent invalidation that exploits personnel scarcity in post-grant opposition at the European Patent Office. We find that patent invalidation leads to a highly significant and sizeable increase of follow-on inventions. The effect is driven by cases where the removal of the individual exclusion right creates substantial freedom to operate for third parties. Importantly, our results suggest that bargaining failure between original and follow-on innovators is not limited to environments commonly associated with high transaction costs.

Keywords:

cumulative innovation; patents; bargaining failure; freedom to operate; opposition

JEL-Classification:

K41; L24; O31; O32; O33; O34

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Discussion Paper No. 215
December 13, 2019

Standing on the Shoulders of Science

Author:

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

Abstract:

The goal of science is to advance knowledge, yet little is known about its value for marketplace inventions. While important breakthrough technologies could not have been developed without scientific background, skeptics argue that this is the exception rather than the rule, questioning the usefulness of basic research for private sector innovations and the effectiveness of the knowledge transfer from university to industry. We analyze the universe of U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show that a patent that directly builds on science is on average 2.9 million U.S. dollars more valuable than a patent in the same technology that is unrelated to science. Based on the analysis of the patent text, we show second that the novelty of patents predicts their value, and third that science-intensive patents are more novel. This documents that science introduces new concepts that are valuable for marketplace inventions. Our study informs the debate on the merits of science for corporate innovation and the origins of breakthrough inventions.

JEL-Classification:

O30; O34; O33; O31

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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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