Returns to Inventors

37 Pages Posted: 7 Nov 2008 Last revised: 9 Nov 2008

See all articles by Otto Toivanen

Otto Toivanen

Aalto University - Department of Economics; KU Leuven - Faculty of Business and Economics (FBE); CEPR; Helsinki Center of Economic Research (HECER)

Lotta Väänänen

Compass Lexecon

Multiple version iconThere are 2 versions of this paper

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

Toivanen, Otto and Väänänen, Lotta, Returns to Inventors (October 2008). Available at SSRN: or

Otto Toivanen (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki

KU Leuven - Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000

CEPR ( email )

United Kingdom

Helsinki Center of Economic Research (HECER)

FI-00014 Helsinki

Lotta Väänänen

Compass Lexecon ( email )

United States

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