Tuesday, March 31, 2015

Estimating Individual Inventor Returns to Patenting

How much individual inventors earn from patenting is hotly debated today, in an age where enforcement is often outsourced to third-party enforcers. But what about returns to inventors who work for companies? They usually assign their inventions to their employers.  Further, they are often largely driven by factors other than money.  But can all wage incentives be discounted?

That's the question tackled by Domenico Depalo and Sabrina Lucia Di Addario (both of Bank of Italy), who have tied twenty years of individual wage earnings to EPO patent data. The abstract for their paper, Shedding Light on Inventors' Returns to Patents, is:

We estimate individual returns to patents using a unique longitudinal administrative dataset on patents and earnings, following individuals and firms for 20 years (1987-2006). We find that inventors' wages steadily increase before patent applications are submitted to the European Patent Office, reach a peak around the time of submission and then decrease again. We also find that the applications that will eventually lead to a granted patent receive a greater wage increase than those that will not. Finally, we use an event study framework to distinguish among inventor-types and we find that the "star-inventors" (the employees submitting at least three times in their life) receive a lasting wage premium, while the employees with one or two submissions stop receiving the premium after the application date, in line with the "unobserved ability" literature. 
The paper is well worth a read, even beyond the core study. The literature review discusses many studies on incentives to invent, including both monetary and non-monetary. The descriptive statistics shed a lot of light on how many employees contributed to patents and how often. And their model, of course, provides interesting information about how companies might value workers that contribute patentable inventions versus those that do not.

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