Measuring the Private and Social Returns to R&D: Unintended Spillovers versus Technology Markets

52 Pages Posted: 11 Jul 2018 Last revised: 10 Feb 2019

Date Written: February 2019

Abstract

Estimates of the private and social rates of return to investments in R&D are of high interest to economists, managers and policymakers. An important problem in the literature is that the canonical model used to obtain such estimates only allows R&D to diffuse through spillovers. This is a serious limitation in a world increasingly characterized by active intellectual property (IP) enforcement and monetization. We create a new dataset of interactions in the market for technology between publicly held firms in the U.S. which allows us to generalize the canonical model with both spillovers and market-mediated technology transfers. We obtain four main findings using changes in tax incentives for R&D to identify causal effects. First, R&D accessed through technology markets is an important input in the generation of revenue. Second, conventional spillover estimates are contaminated with technology transfers because the weights traditionally used to capture spillovers are strongly correlated with matching in the market for technology. Third, the private rate of return to R&D is larger in the generalized framework while the wedge between the social and private returns is smaller. Finally, back of the envelope estimates suggest that the gains from trade in the market for technology might be larger than $1 trillion per year, accounting for 10% of total revenue in Compustat.

Keywords: Market for technology, Patents, Spillovers, Innovation, R&D

JEL Classification: D23, L24, O31, O34

Suggested Citation

Arqué Castells, Pere and Spulber, Daniel F., Measuring the Private and Social Returns to R&D: Unintended Spillovers versus Technology Markets (February 2019). Northwestern Law & Econ Research Paper No. 18-18. Available at SSRN: https://ssrn.com/abstract=3202870 or http://dx.doi.org/10.2139/ssrn.3202870

Pere Arqué Castells (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Daniel F. Spulber

Northwestern University - Kellogg School of Management ( email )

Kellogg Global Hub
2211 Campus Dr.
Evanston, IL 60208
United States
847-491-8675 (Phone)
847-467-1777 (Fax)

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