Knowledge Flow and Sequential Innovation: Implications for Technology Diffusion, R&D and Market Value

69 Pages Posted: 29 Mar 2006

See all articles by Sharon Belenzon

Sharon Belenzon

Duke University; NBER; Duke Innovation & Entrepreneurship Initiative

Date Written: February 2006

Abstract

It is shown that spillovers can enhance private returns to innovation if they feed back into the dynamic research of the original inventor (Internalized spillovers), but will always reduce private returns, if the original inventor does not benefit from the advancements other inventors build into the spilled knowledge (Externalized spillovers). I empirically identify unique patterns of knowledge flows (based on patent citations), which provide information about whether spilled knowledge is reabsorbed by its inventor. A simple model of sequential innovation with dynamic spillovers is developed, which predicts that market value and R&D expenditures should rise with Internalized spillovers and fall with Externalized spillovers. These predications are confirmed using panel data on U.S. firms between 1981 and 2001. To the extent that firms internalize some of the spillovers they create, the classical underinvestment problem in R&D will be mitigated and the central role of spillovers in promoting economic growth will be enhanced.

Keywords: market value, patents, R&D and spillovers

JEL Classification: O31, O32, O33

Suggested Citation

Belenzon, Sharon, Knowledge Flow and Sequential Innovation: Implications for Technology Diffusion, R&D and Market Value (February 2006). Available at SSRN: https://ssrn.com/abstract=893060 or http://dx.doi.org/10.2139/ssrn.893060

Sharon Belenzon (Contact Author)

Duke University ( email )

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Durham, NC 27708-0204
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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(1) 617 588 1484 (Phone)

Duke Innovation & Entrepreneurship Initiative ( email )

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Durham, NC 27701
United States

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