Knowledge Spillovers in US Patents: A Dynamic Patent Intensity Model with Secret Common Innovation Factors Articles uri icon

publication date

  • November 2010

start page

  • 14

end page

  • 32

issue

  • 1

volume

  • 159

international standard serial number (ISSN)

  • 0304-4076

electronic international standard serial number (EISSN)

  • 1872-6895

abstract

  • During the past two decades, innovations protected by patents have played a key role in business strategies. This fact enhanced studies of the determinants of patents and the impact of
    patents on innovation and competitive advantage. Sustaining competitive
    advantages is as important as creating them. Patents help sustaining
    competitive advantages by increasing the production cost of competitors,
    by signaling a better quality of products and by serving as barriers to
    entry. If patents are rewards for innovation, more R&D should be
    reflected in more patent applications but this is not the end of the
    story. There is empirical evidence showing that patents through time are
    becoming easier to get and more valuable to the firm due to increasing
    damage awards from infringers. These facts question the constant and
    static nature of the relationship between R&D and patents.
    Furthermore, innovation creates important knowledge spillovers due to
    its imperfect appropriability. Our paper investigates these dynamic
    effects using US patent data from 1979 to 2000 with alternative model
    specifications for patent counts. We introduce a general dynamic count
    panel data model with dynamic observable and unobservable spillovers,
    which encompasses previous models, is able to control for the
    endogeneity of R&D and therefore can be consistently estimated by
    maximum likelihood. Apart from allowing for firm specific fixed and
    random effects, we introduce a common unobserved component, or secret
    stock of knowledge, that affects differently the propensity to patent of
    each firm across sectors due to their different absorptive capacity.