Diversification of procedural and administrative costs and innovation: Some firm-level evidence

Abstract

We examine the diversification of administrative and procedural costs on patent stock using a large dataset from the European Patent Office with 15,000 firms for the period between 1995 and 2015. The results reveal that administrative and procedural costs are significant for firm-level patenting activity. However, not all administrative and procedural costs have equal effects. Higher administrative costs often encourage patent application and validation by solving the adverse selection problem and short-run opportunism, as well as other sources of asymmetric information. The effective administration of intellectual property law and low-cost enforcement are found to considerably foster patenting activity. The effects are robust for various mis-specification checks and do not disappear once country-level research and development infrastructure proxies are controlled for. The extreme bounds of administrative and procedural costs are computed across more than 5 billion regressions, and the sizeable impact of administration on patent application and validation outcomes is confirmed.