Abstract
Timely feedback on interim performance provided to firms is important for motivating firm innovation as proposed in Manso (2011). This paper tests the feedback mechanism by exploring how a firm’s physical distance to the United States Patent and Trademark Office, which captures the ease and intensity of timely feedback on interim performance during the patenting process, affects firm innovation output. Using plausible exogenous variation in distance generated by firm relocations and changes in direct flight frequency, we find that a decrease in timely feedback provided to firms results in a more lengthy patent procurement and a reduction in patent quantity. We also show that timely feedback is important for exploratory, but not for exploitative, innovation activity. Our paper sheds new light on public policy that supports a successful implementation of innovation ecosystems.
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