Returns to Inventors
37 Pages Posted: 7 Nov 2008 Last revised: 9 Nov 2008
Date Written: October 2008
The return that inventors appropriate from their inventions forms a key incentive and remuneration mechanism for innovation. We utilize data on U.S. patents and their inventors linked to Finnish employer-employee data to estimate the effect of patenting on earnings. Inventors get a temporary 3% wage increase in the year of the patent grant. In addition, there is a 4-5% increase in earnings four years after the patent grant, which remains there for at least the following two years. The returns to inventors depend on the quality of the patent, as measured through the number of forward citations. Returns accrue through earnings, not capital income. Job changes do not affect returns. Initially owning the patent first yields negative returns but increases significantly the later returns, with the increases in years 5-6 after the patent grant being of the order of 15-30% instead of 4-5%.
Keywords: effort, incentives, inventors, intellectual property, patents, performance pay, return, earnings
JEL Classification: O31, J31
Suggested Citation: Suggested Citation