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R&D investment and patent renewal decisions

Jyh-Bang Jou

The Quarterly Review of Economics and Finance, 2018, vol. 69, issue C, 144-154

Abstract: This study employs the real options model to investigate how uncertainty in patent rewards and the chance of success of the R&D investment affect a firm’s likelihood to renew a patent. The firm chooses the date on which to undertake an R&D investment project that offers it a chance of developing an innovation, which is immediately patented and commercialized. Thereafter, the firm must pay periodic renewal fees to keep the patent alive. This paper finds that greater uncertainty does not lead to a universal effect on the renewal probability. When there is no uncertainty, the firm will always renew the patent before a certain date but will never renew it after that date. When there is uncertainty, the renewal probability will decline smoothly over time toward the expiration date. This paper also finds that a firm that is more likely to be successful in its R&D investment is more likely to renew its patent right.

Keywords: Patent renewal; R&D investment; Real options; Renewal fees; Uncertainty (search for similar items in EconPapers)
JEL-codes: C61 D81 G13 O31 O34 (search for similar items in EconPapers)
Date: 2018
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