(A quick sidenote: Have you noticed that innovation is that rare breed of economics fields, one dominated by women? Consider Bronwyn Hall, Fiona Murray, Rosemarie Ziedonis, Heidi Williams, Rebecca Henderson, etc. Economics really does have a problem in the lack of women in the field; we’re wasting 50% of the potential talent! Male dominance is particularly pronounced in micro theory, the area I write most about on this blog. I think anyone would have trouble naming even five female theorists. Innovation is interesting because it’s not an area that would “obviously” attract many women; that is, no one is surprised to find women in development, or labor, or environmental econ. In any case, the lack of women in economics overall is a serious problem.)
This paper by Hall, Jaffe and Trajtenberg, three names that will be very familiar to anyone doing work on patent policy, attempts to figure out the value of R&D, patents and patent citations to firms. They do this by constructing an enormous database of company market values, patents, and citations on those patents from the late 1970s to the early 1990s. The data is then plugged into a Tobin equation to extract the marginal value of a patent (holding R&D constant) and the marginal value of a patent citation (holding R&D and the number of patents constant). An extra patent citation per patent – that is, firms with particularly useful patents – turns out to be worth, on average, an incredible 3% of a firm’s market value. The market also appears to reward self-citations, or citations of a patent by the same firm, even more heavily; perhaps this represents an intangible “well-defined line of research”.
There are obvious endogeneity problems, as well as obvious heterogeneity across industries which isn’t totally cleaned up by industry and time fixed effects. Nonetheless, I’m told this paper has become well-cited because it offers a way of measuring “intangible assets” of a firm indirectly; marketers and finance types have used similar methods to estimate the value of brands, or of social investment, and so on.
Also, Bronwyn Hall, now semi-retired, has all of this matched patent and Compustat data available on her website. I imagine this was a huge undertaking in the pre-Google days. For other types of patent research, though, check out the great XML-tagged patent database at Google Patents. Now we just need Google to tag up European and Japanese patent databases!