Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights

Ronny Razin and Mariagiovanna Baccara

No 4466, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we analyse the effects of information leakage on the incentives to innovate in firms. We analyse a situation in which an employee in a firm is inspired with a new idea for a product. In a framework in which Intellectual Property Rights on ideas are absent, we analyse the employee?s decision of whether to disclose the idea within the firm or to form a spin-out. We next look at the shareholders of the original firm and analyse their incentives to promote creativity and innovations among employees. Our analysis highlights the effects of the distribution of shares within the firm and the firm?s size on the incentives and behaviour of firms towards innovation. In particular we highlight the following findings. (i) Often employees may not implement an idea either within or outside the firm. (ii) The ownership structure affects the incentives to promote innovation in firms. (iii) Firm shareholders may have incentives to curtail innovation even if these innovations are expected to be revealed within the firm. (iv) Firms may buy-off potential innovative agents, by providing them with compensation plans that dominate leaving the firm, or revealing new ideas within the firm. (v) Information leakage concerns affect both the hiring and the information provision decisions of the firm.

Keywords: Information leakage; Spin-outs; Innovation; Corporate governance (search for similar items in EconPapers)
JEL-codes: L00 L22 (search for similar items in EconPapers)
Date: 2004-07
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Citations: View citations in EconPapers (4)

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Working Paper: Curb Your Innovation: Corporate Conservatism in the Presence of Imperfect Intellectual Property Rights (2004)
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