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Yongmin Chen (), Shiyuan Pan and Tianle Zhang ()

International Economic Review, 2018, vol. 59, issue 4, 1969-1993

Abstract: We present a model where firms conduct R&D in both a safe and a risky direction. As patentability standards rise, an innovation in the risky direction is less likely to receive a patent, which decreases the static incentive for new entrants to conduct risky R&D but can increase their dynamic incentive. These, together with a strategic substitution and a market structure effect, result in an inverted‐U shape in the risky direction but a U shape in the safe direction for the relationship between R&D intensity and patentability standards. R&D is biased toward (against) the risky direction under lower (higher) standards.

Date: 2018
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Working Paper: Patentability, R&D direction, and cumulative innovation (2016) Downloads
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