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Who Profits from Patents? Rent-Sharing at Innovative Firms

Patrick Kline, Neviana Petkova, Heidi Williams () and Owen Zidar

Institute for Research on Labor and Employment, Working Paper Series from Institute of Industrial Relations, UC Berkeley

Abstract: This paper analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of US patent applications to US business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex-ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex-ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex-ante value patents yield no detectable effects on firm outcomes. On average, workers capture 29 cents of every dollar of patent-induced operating surplus. This share is larger for men, employees who are listed as inventors, and firm stayers present since the year of application. Patent allowances lead firms to increase employment, but we find minimal evidence of quality upgrading or selection bias in workforce composition. Surprisingly, entry wages are insensitive to patent decisions, suggesting that the large earnings responses of incumbent workers may reflect performance pay.

Keywords: Social and Behavioral Sciences; patents; profit; rent-sharing; innovative firms (search for similar items in EconPapers)
Date: 2017-09-01
New Economics Papers: this item is included in nep-ino and nep-ipr
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Related works:
Journal Article: Who Profits from Patents? Rent-Sharing at Innovative Firms (2019) Downloads
Working Paper: Who Profits from Patents? Rent-Sharing at Innovative Firms (2018) Downloads
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