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Bubbles and the Value of Innovation

Valentin Haddad, Paul Ho and Erik Loualiche

No 20-08, Working Paper from Federal Reserve Bank of Richmond

Abstract: Episodes of booming innovation coincide with intense speculation in financial markets leading to bubbles—increases in market valuations and firm creation followed by a crash. We provide a framework reproducing these facts that makes a rich set of predictions on how speculation changes both the private and social values of innovation. We confirm the theory in the universe of U.S. patents issued from 1926 through 2010. Measures based on financial market information indicate that speculation increases the private value of innovation and reduces negative spillovers to competing firms. No commensurate change occurs in measures grounded in real outcomes.

Keywords: Bubbles; Innovation; patents (search for similar items in EconPapers)
Pages: 90
Date: 2020-07-03
New Economics Papers: this item is included in nep-fdg and nep-ino
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DOI: 10.21144/wp20-08

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