NBER research summary 2003-2006

Bronwyn H. Hall

Bronwyn Hall has worked on a broad range of questions in the economics of innovation during the past four years: the valuation of innovation assets, the analysis of innovation using patent data, patent policy, and intellectual property issues arising in the context of scientific research or university-industry collaboration. Together with NBER Research Associates Adam Jaffe and Manuel Trajtenberg, she brought the first NBER patent citation data project to completion and used these data to investigate whether the citations received by a firm’s patents convey information about their private stock market valuation (NBER WP w7741). The answer was yes: they are more informative about value than the patents themselves, with interesting variation across industrial sectors. The same methodology was recently applied by Hall and NBER FRF Megan MacGarvie to data on software patenting. In NBER WP w12195, they were able to show that software patents are typically more valuable than ordinary patents after 1995 (the date of major changes in software patentability in the United States), but that it does not matter whether these patents are cited if they are held by hardware firms. That is, the “importance” of software patents held by non-software firms is not value-relevant, although their existence is. These authors also found that the spread of software patentability ushered in by a series of court decisions in 1994/1995 was viewed initially as a negative development for applications software firms by the financial markets.

Hall has also pursued the closely related area of the market value of R&D spending, both for U.S. firms (in the previously mentioned paper with Jaffe and Trajtenberg) and then for firms in a number of major European countries (the latter work is joint with Raffaele Oriani, NBER WP w10408). Although the number of firms publicly traded on financial markets in such countries as France, Germany, and Italy is substantially smaller than in the United States or United Kingdom, such firms do account for a major share of privately performed R&D in these countries. Hall and Oriani found that their R&D is valued similarly to R&D done in the United States and the United Kingdom, except when the ownership of the firms is highly concentrated – in this case values are close to zero. The value of R&D performed in UK and Italian firms is substantially higher than that performed in French, German, and US firms, which may possibly suggest underinvestment in innovative activities in those two countries.

A current area of policy concern in much of the world is the expansion and growth of patenting activity by firms in many sectors, which has led to an increase in the uncertainty and costs associated with enforcing one’s own patents or defending against the patents of others. In a paper resulting from an earlier NBER project on patents, Hall and Ziedonis (2001) found that increases in patenting in the semiconductor industry since the mid-1980s were largely driven by a need to amass large defensive patent portfolios due to the complex nature of the technology and the threat of holdup. In NBER WP w10605, Hall looked at the growth of patenting in all sectors and confirmed that most of it was due to increased activity by firms in the ICT sector, patenting in all technology sectors. Although such explosive growth (5-8 per cent per annum) may be partly due to increased innovation, it has also seriously impacted patent offices worldwide and led to increasing concern over patent quality and timeliness of issuance. Together with Dietmar Harhoff, Stuart Graham, and NBER Research Associate David Mowery, Hall has been investigating the working and outcomes of the patent opposition system used in Europe and how such a system might function in the United States. The results of their work appear in two NBER working papers (49731 and w8807) and in the NBER journal Innovation Policy and the Economy.

One of the areas where patenting has grown worldwide is the patenting of the results of university research, although universities still account for a small share of patenting as a whole and university research is still largely conducted according to the “open science” model, with results being published instead of patented. The remainder of Hall’s recent work has centered on IP issues arising from university-industry interaction, documenting the tensions that arise (NBER WP w7643) and exploring the economics of supplying useful research inputs in this context (NBER WP w11120, with Alfonso Gambardella). In addition, she and NBER Research Associate Jacques Mairesse, together with Laure Turner of ENSAE, have begun an econometric investigation into the determinants of the productivity of scientific researchers (NBER WP w11739).