Patents, Real Options and Firm Performance

20 Pages Posted: 5 Mar 2003

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Abstract

Analysing the new IFS-Leverhulme database on over 200 major British firms since 1968 we show that patents have an economically and statistically significant impact on firm-level productivity and market value. While patenting feeds into market values immediately it appears to have a slower effect on productivity. This generates valuable real options because patents provide exclusive rights to develop new innovations, enabling firms to delay investments. Higher market uncertainty, which increases the value of real options, reduces the impact of new patents on productivity. If the government's policy to reduce uncertainty is successful then this should increase the productivity of Britain's knowledge capital.

Suggested Citation

Bloom, Nicholas and Van Reenen, John Michael, Patents, Real Options and Firm Performance. Economic Journal, Vol. 112, pp. C97-C116, 2002. Available at SSRN: https://ssrn.com/abstract=312200

Nicholas Bloom (Contact Author)

Stanford University - Department of Economics ( email )

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HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

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John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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United Kingdom
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+44 20 7955 6848 (Fax)

Stanford Graduate School of Business ( email )

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Institute for Fiscal Studies (IFS) ( email )

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+44 20 7240 6740 (Phone)
+44 20 7240 6136 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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