Patents as an Appropriation Mechanism by ulm13840

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									   Patents as an Appropriation
           Mechanism
URL: http://socrates.berkeley.edu/~scotch/cohenetal.pdf
              Growth matters
• First half of the 20th century: real GDP per unit
  of labor grew at 2.75%.
• Reminder: the rule of 70.
  At growth rate a%, value doubles in about 70/a
  years.
• After the first 25 years, output per person was
  twice as high, and after 50 years four times as
  high.
• In the last quarter of the 20th century, growth has
  slowed down, but never below about 1.75%.
                            R&D Spending: Total, Federal and Industry

                           300
billions of 1996 dollars



                           250
                           200                                                    Industry R&D
                           150                                                    Federal R&D
                           100                                                    Total R&D

                            50
                             0
                                 1953
                                        1960
                                               1967
                                                      1974
                                                             1981
                                                                    1988
                                                                           1995
                        R&D Spending and Domestic Patent Grants                                                       s
                                            300000
millions of $1996, domestic patent grants



                                            250000

                                            200000
                                                                                                      Industry R&D
                                            150000                                                    Federal R&D

                                            100000                                                    Total R&D

                                                                                                      Domestic
                                             50000                                                    Patent Grants

                                                 0
                                                     1953
                                                            1960
                                                                   1967
                                                                          1974
                                                                                 1981
                                                                                        1988
                                                                                               1995
     Q  F ( L, C, K , T )                     Growth Accounting

Each of L,C,K,T grows. Change per unit time:    L, C, K , T
    Q  FL L  FC C  FK K  FT T
                                                 Wages satisfy:
where FL, FC are the marginal product of L,C    wL  FL , wC  FC
     Q  wL L  wC C  FK K  FT T
             Q wL L L wC C C 1
Rearrange:                    [ FK K  FT T ]
             Q   Q L     Q C    Q

 =wage share of GDP Q   L   C  1 F K  F T 
                                            K      T
 =capital share of GDP Q    L     C    Q

Subtract the wage and capital growth shares from growth in GDP to
get the portion of growth not accounted for by L,C. About half!!
     R&D, Patents and Productivity
• The growth residual (after accounting for labor and
  capital growth) is about half. But is it linked to the
  growth in “knowledge”?
       Yes, if knowledge is “accumulated R&D.”
       Private R&D spending has a bigger effect on GDP
       than public spending. Why?
• Rate of return on R&D spending is greater than rate of
  return on capital (stock market). Is this what you expect?
       Yes, because….
• Suppose the rates of return were the same.
       Is R&D spending too high? Too low?
                 R&D and Patenting
•    R&D spending is an input. Patents are an output.
         What is it that we really want to measure?
         Can we measure innovation? (no)
         Welfare (GDP?) is what we care about in any case.
•    Nevertheless, it might be of interest to record:
    1.   Total patent grants (not domestic US grants) have grown more or
         less commensurately with industrial spending in late 20th century.
    2.   (Foreign patent grants grew from 18% to half in postwar.)
    3.   Cost of patents is $1m-$2m (1996 dollars)
    4.   Rate of return on R&D spending is greater than rate of return on
         capital (stock market). Is this what you expect?
•    Suppose the rates of return were the same.
         Is R&D spending too high? Too low?
The value side: Several Methodologies
      Patent Values are skewed.
Does skewness matter? What matters for incentives?

Scherer and Harhoff
http://socrates.berkeley.edu/~scotch/skew.pdf


• First two rows: survey evidence
• Next rows: royalty data from technology
  licensing offices.
• Penultimate rows: Stock value
• Drugs: Sales
Evidence from Renewal Data:




     R(t)          C(t)




                 time t
What do we learn from renewals?

• Gives a distribution of value of patent rights.
  (Distinguish from value of innovation.)
• Most of the value is in the top few patents.
• Half of patents “end” at about year 10.
• Only about 10-15% of R&D spending is
  recovered from patent value (24% of private
  spending)
Final Methodology: Estimate the effect of patents
             on firm’s stock value

 • Three regressors that affect firm value:
   patent counts, R&D spending, patent citations,

 • Should help us distinguish between the value of the
   innovation and the value of a patent right.
 • Early studies used patent counts and R&D.
   The R&D variable reduces the value of the patent right to
   ¼ its previous value.
 • Patent citations are a better predictor of value than patent
   counts, but still less good than R&D spending.
                                         K
                                when g       is small
                                         A




Empirical question: For which types of K is the coefficient g larger?

								
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