This paper argues that openness of upstream research does not simply encourage higher levels of downstream exploitation, it also raises the incentives for additional upstream research by encouraging the establishment of entirely new research directions. We test this hypothesis by examining a “natural experiment” in openness within the academic community: NIH agreements signed during the late 1990s that limited the IP restrictions imposed on academics regarding certain genetically engineered mice. Using a sample of engineered mice that are linked to specific scientific papers (some affected by the NIH agreements and some not), we implement a differences-in-differences estimator to evaluate how the level and type of follow-on research using these mice changes after the NIH-induced increase in openness. We find a significant increase in the level of follow-on research. Moreover, this reflects increased exploration of more diverse research paths. Overall, our findings highlight a neglected cost of IP: reductions in the diversity of experimentation that follows from a single idea.
We investigate how university governance affects research output, measured by patenting and international university research rankings. For both European and U.S. universities, we generate several measures of autonomy, governance, and competition for research funding. We show that university autonomy and competition are positively correlated with university output, both among European countries and among U.S. public universities. We then identity a (political) source of exogenous shocks to funding of U.S. universities. We demonstrate that, when a state's universities receive a positive funding shock, they produce more patents if they are more autonomous and face more competition from private research universities. Finally, we show that during periods when merit-based competitions for federal research funding have been most prominent, universities produce more patents when they receive an exogenous funding shock, suggesting that routine participation in such competitions hones research skill.
We develop a model that clari es the respective advantages and disadvantages of academic and private-sector research. Our model assumes full protection of intellectual property rights at all stages of the development process, and hence does not rely on lack of appropriability or spillovers to generate a rationale for academic research. Instead, we focus on control-rights considerations, and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus. By serving as a precommitment mechanism that allows scientists to freely pursue their own interests, academia can be indispensable for early-stage research. At the same time, the private sectors ability to direct scientists towards higher-payo¤ activities makes it more attractive for later-stage research.
In a cross-section of countries, state regulation of labor markets is strongly negatively correlated with the quality of labor relations. In this paper, we argue that these facts reflect different ways to regulate labor markets, either through the state or through the civil society, depending on the degree of cooperation in the economy. We rationalize these facts with a model of learning of the quality of labor relations. Distrustful labor relations lead to low unionization and high demand for direct state regulation of wages. In turn, state regulation crowds out the possibility for workers to experiment negotiation and learn about the potential cooperative nature of labor relations. This crowding out effect can give rise to multiple equilibria: a “good” equilibrium characterized by cooperative labor relations and high union density, leading to low state regulation; and a “bad” equilibrium, characterized by distrustful labor relations, low union density and strong state regulation of the minimum wage.
The foundations of incomplete contracts have been questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of subgame perfect implementation to the introduction of small amounts of asymmetric information. We show that Moore-Repullo mechanisms may not yield (even approximately) truthful revelation in pure or totally mixed strategies as the amount of asymmetric information goes to zero. Moreover, we argue that a wide class of extensive-form mechanisms are subject to this fragility.
We study the e¤ects of the progressive elimination of the system of industrial regulations on entry and production, known as the license raj, on registered manufacturing output, employment, entry and investment across Indian states with different labor market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following delicensing, industries located in states with pro-employer labor market labor market institutions grew more quickly than those in pro-worker environments.
Using three different panel data sets, we show: (i) that mark-ups are significantly higher in South African manufacturing industries than they are in corresponding industries worldwide; (ii) that competition policy (i.e a reduction of mark-ups) should have largely positive effects on productivity growth in South Africa.
We use a French firm-level panel data set over the period 1993-2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes more procyclical as firms face tighter credit constraints; (ii) the result is magnified for firms in sectors that depend more heavily upon external finance; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.
We explore the question of how political institutions and particularly democracy affect economic growth. Although empirical evidence of a positive effect of democracy on economic performance in the aggregate is weak, we provide evidence that democracy influences productivity growth in different sectors differently and that this differential effect may be one of the reasons of the ambiguity of the aggregate results. We provide evidence that political rights are conducive to growth in more advanced sectors of an economy, while they do not matter or have a negative effect on growth in sectors far away from the technological frontier. One channel of explanation goes through the beneficial effects of democracy and political rights on the freedom of entry in markets. Overall, democracies tend to have much lower entry barriers than autocracies, because political accountability reduces the protection of vested interests, and entry in turn is known to be generally more growth-enhancing in sectors that are closer to the technological frontier. We present empirical evidence that supports this entry explanation.
Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.
This paper develops a framework to analyze the relationship between the diffusion of new technologies and the decentralization of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use her informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the trade-off shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments and younger firms are more likely to choose decentralization. Using three datasets of French and British firms in the 1990s, we report robust correlations consistent with these predictions.