Innovation and Incentives: Evidence from Corporate R&D

Josh Lerner and Julie Wulf
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Julie Wulf: Wharton School, University of Pennsylvania

The Review of Economics and Statistics, 2007, vol. 89, issue 4, 634-644

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 (such as stock options and restricted stock) are associated with more heavily cited patents. These incentives also appear to be associated with more patent awards and patents of greater originality. Short-term incentives appear to be unrelated to measures of innovation. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2007
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