Bubbles and the Value of Innovation

92 Pages Posted: 23 Jul 2020

See all articles by Valentin Haddad

Valentin Haddad

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

Paul Ho

Federal Reserve Banks - Federal Reserve Bank of Richmond

Erik Loualiche

University of Minnesota, Finance

Date Written: July, 2020

Abstract

Episodes of booming innovation coincide with intense speculation in financial markets leading to bubbles—increases in market valuations and firm creation followed by a crash. We provide a framework reproducing these facts that makes a rich set of predictions on how speculation changes both the private and social values of innovation. We confirm the theory in the universe of U.S. patents issued from 1926 through 2010. Measures based on financial market information indicate that speculation increases the private value of innovation and reduces negative spillovers to competing firms. No commensurate change occurs in measures grounded in real outcomes.

Keywords: Bubbles, Innovation, patents

Suggested Citation

Haddad, Valentin and Ho, Paul and Loualiche, Erik, Bubbles and the Value of Innovation (July, 2020). FRB Richmond Working Paper No. 20-08, Available at SSRN: https://ssrn.com/abstract=3658585 or http://dx.doi.org/10.21144/wp20-08

Valentin Haddad (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paul Ho

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Erik Loualiche

University of Minnesota, Finance ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States
612 625 5679 (Phone)

HOME PAGE: http://https://loualiche.gitlab.io/www/

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