Employed inventors, inter-firm mobility, bonus pay with multi-stage R&D processes, and optimal innovation policy

Diego d'Andria

No 2016-02, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre

Abstract: A temporary change in pay to employed inventors around the time of patent application has been observed in a number of countries. A theoretical model is here developed to provide an explanation to said findings based on the idea that inventors may be able to use the knowledge previously generated while working in a firm, in a rival company. The model features firms who hire workers in R&D functions to make product innovations. The innovation process consists of distinct phases separated by a patent application. Firms compete to attract workers, and workers can transfer part of the generated new knowledge to a new employer. Results suggest that the capital intensity of R&D investments, and the type and size of knowledge spillovers, may affect the probability to observe bonus pay at the time of a patent application. Different tax incentives and subsidies are then studied as a means to correct for possible under-investment of capital. We study the effect of a patent box, a subsidy to R&D capital investments, and a subsidy to bonus pay. When market rivalry prevails over positive knowledge externalities, a bonus pay incentive was found to obtain the social first-best while a patent box or a subsidy to capital investment would cause overinvestment. When positive knowledge externalities prevail, either a patent box or a subsidy to capital investment obtain the social optimal level of capital investments.

Keywords: innovation; bonus pay; moving researchers; patents; R&D tax incentives (search for similar items in EconPapers)
JEL-codes: H23 H25 J31 O3 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2016-12
New Economics Papers: this item is included in nep-ino and nep-sbm
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