Innovation and Incentives: Evidence from Corporate R&D

Josh Lerner and Julie Wulf

No 11944, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Beginning in the late 1980s, American corporations began increasingly linking the compensation of central research personnel to the economic objectives of the corporation. This paper examines the impact of the shifting compensation of the heads of corporate research and development. Among firms with centralized R&D organizations, a clear relationship emerges: more long-term incentives (e.g. stock options and restricted stock) are associated with more heavily cited patents. These incentives also appear to be somewhat associated with more patent filings and patents of greater generality. We address endogeniety concerns in a variety of ways, including examining the impact of compensation for other key managers and utilizing an instrument based on spawning activity in the region. While we cannot determine whether the effect is due to better project selection or better people selection, the results continue to be consistent with our interpretation that performance pay of corporate R&D heads is associated with more innovative firms.

JEL-codes: J3 O3 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-ino and nep-tid
Note: CF PR
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Citations: View citations in EconPapers (8)

Published as Lerner, Josh and Julie Wulf. "Innovation and Incentives: Evidence from Corporate R&D." Review of Economics and Statistics 89 (2007): 634-644.

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