Abstract
Recombinant innovation, the combination of existing ideas, is important for technological progress; we want to understand how important market frictions are in stifling the transmission of ideas from one firm to another. Although the theoretical literature emphasizes the importance of these frictions, direct empirical evidence on them is limited. We use comprehensive data on patent applications from the European Patent Office and a multiple spells duration model to provide estimates that suggest that they are substantial. It is around 30% more costly to successfully discover and utilize new ideas created in another firm than in your own. This compares to the increased costs of accessing new ideas across national borders of around 7%, and across technologies of around 20%. These result point towards substantial imperfections in the market for technology.
Highlights
Innovation is reliant on the recombination of existing ideas, more than ever (Jones (2009), Wuchty et al (2007), Henderson and Clark (1990), Henderson and Cockburn (1990) and Weitzman (1998))
Between firms that the empirical magnitude of market frictions are substantial, and we interpret our evidence as pointing towards substantial imperfections in the market for technology
We find robust empirical evidence that market frictions are substantial in the market for technology
Summary
Innovation is reliant on the recombination of existing ideas, more than ever (Jones (2009), Wuchty et al (2007), Henderson and Clark (1990), Henderson and Cockburn (1990) and Weitzman (1998)). Firms combine prior art with their own ideas to form new patentable technologies. There is an extensive theoretical literature that details the ways by which market frictions, such as incomplete contracts, transactions costs and intellectual property rights, might stifle the transmission and use of ideas across firms, leading to less research than is socially desirable (Scotchmer (1991), Green and Scotchmer (1995), Bessen (2004), Boldrin and Levine (2013)). Our contribution in this paper is to develop an empirically tractable model of search and innovation that we can take to data to learn about the size of these market frictions. We estimate the increase in effort that is required to successfully develop a new technology when it relies on transactions in the market, as opposed to internal to the firm. We use data on all patents applications made at the European patent office, matched to firm structures, to consider the length of time it takes a firm to build on an idea published in a patent held by a different firm, relative to an idea published in a patent held within the same firm
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
