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Patent Protection, Market Uncertainty, and R&D Investment

Dirk Czarnitzki^1,2,3,4; Andrew A. Toole⁵

¹ Centre for European Economic Research · ² Economic Research Centre · ³ Research Institute of Industrial Economics · ⁴ KU Leuven · ⁵ Economic Research Service

The main reason governments grant patent protection is to spur innovation. However, the size of the R&D stimulus from patent protection is far from clear because it depends on how effective patents are as a mechanism for appropriating returns. Drawing on real options investment theory, this paper highlights one mechanism through which patents may improve appropriability and stimulate R&D investment: patents reduce the effect of market uncertainty on the firm’s investment decision. We find that firm-level R&D investment falls in response to higher levels of uncertainty, but that patent protection partially mitigates the influence of uncertainty.

DOI

10.1162/rest_a_00069

Volume

93 (1)

Pages

147-159

Language

en

Export

BibTeX

Sources

crossref openalex