Appropriability and Commercialization: Evidence from Mit Inventions
36 Pages Posted: 18 Aug 2005
Date Written: August 10, 2005
Abstract
The effects of appropriability on invention have been well studied, at least since Arrow (1962), but there has been little analysis of the effect of approbriability on the commercialization of existing inventions. Exploiting a database of 966 attempts by private firms to commercialize inventions licensed from MIT between 1980 and 1996, we explore the influence of several appropriability mechanisms on the commercialization and termination of projects to develop products based on university inventions. We construct a theoretical model in which the licensee faces technical and market uncertainty, as well as the risk that others may develop non-infringing substitutes. We characterize the hazards of commercialization and termination as a function of several appropriability mechanisms, including patent scope and strength, the importance of lead time, and secrecy. The model is tested using a competing risks framework that allows for non-parametric unobserved heterogeneity and correlated risks. Patent scope and strength, as well as the importance of lead time, appear to be important in termination and commercialization decisions. Commercialization is also shown to be unlikely until patents are actually awarded.
Keywords: Hazard rates, innovation, optimal stopping problem, patent scope, university licensing
JEL Classification: O31, O34
Suggested Citation: Suggested Citation
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