Appropriability and Commercialization: Evidence from MIT Inventions
Kent State University - Department of Economics
Brent D. Goldfarb
University of Maryland - Robert H. Smith School of Business
Marie C. Thursby
Georgia Institute of Technology - Strategic Management Area; National Bureau of Economic Research (NBER)
Case Western Reserve University - Department of Economics
August 10, 2005
Robert H. Smith School Research Paper No. RHS 06-023
The effects of appropriability on invention have been well studied, at least since Arrow (1962), but there has been little analysis of the effect of approbriability on the commercialization of existing inventions. Exploiting a database of 966 attempts by private firms to commercialize inventions licensed from MIT between 1980 and 1996, we explore the influence of several appropriability mechanisms on the commercialization and termination of projects to develop products based on university inventions. We construct a theoretical model in which the licensee faces technical and market uncertainty, as well as the risk that others may develop non-infringing substitutes. We characterize the hazards of commercialization and termination as a function of several appropriability mechanisms, including patent scope and strength, the importance of lead time, and secrecy. The model is tested using a competing risks framework that allows for non-parametric unobserved heterogeneity and correlated risks. Patent scope and strength, as well as the importance of lead time, appear to be important in termination and commercialization decisions. Commercialization is also shown to be unlikely until patents are actually awarded.
Number of Pages in PDF File: 36
Keywords: Hazard rates, innovation, optimal stopping problem, patent scope, university licensing
JEL Classification: O31, O34working papers series
Date posted: August 18, 2005
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