Abstract
Innovative activity depends on the incentives to create new ideas as well as the visibility of and access to existing ones. We show that a relative strengthening of trade secrets protection has a disproportionately negative effect on patenting of processes -- inventions that are not otherwise visible to society. We develop a structural model of initial and follow-on innovation to determine the welfare effects of such shifts in disclosure for industries characterized by cumulative innovation. While stronger trade secrets encourage investment in initial R\&D, they may have negative effects on overall welfare by reducing opportunities for follow-on innovation.
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