The three chapters of this dissertation analyze the influence of three fundamental institutions - markets, law, and politics - on the generation and commercialization of new ideas (innovation). The analyses are empirical, and apply the theoretical perspectives of economics, law, and political science.
The first chapter asks: how do real world managers deal with adverse selection and moral hazard problems in the market for ideas? To answer this question, the chapter analyzes a new sample of 505 of arm's-length contracts, negotiated during the 1995-2008 years, between inventors and developers of biomedical inventions. The statistical findings are consistent with agency theories that propose mitigating the information problems with two-part payments consisting of upfront fees and output-based royalty rates. But I also find that licenses include other types of payments (viz. minimum royalty payments and milestone payments) to address the transaction costs of verifying outputs and the uncertainty associated with developing novel inventions.
The second chapter investigates political influence in the allocation of public funds for the generation of ideas. The chapter studies U.S. Congressional appropriations committee bills and documents, and argues that although appropriators do not earmark federal funds for biomedical research performers, they support allocations for those research fields that are most likely to benefit performers in their constituencies. The econometric analysis uses data on peer reviewed grants by the National Institutes of Health during the years 1984-2003, and finds that performers in the states of certain House appropriations committee members receive 5.9-10.3% more research funds as compared to unrepresented institutions. Members appear to support funding for the projects of represented research performers in fields in which they are relatively weak, and counteract the distributive effect of the peer review process.
The third chapter (coauthored with Professors David C. Mowery and Stuart J. H. Graham) exploits the Y1995 change in U.S. patent term to understand the use of continuations by firms in the prosecution of their patents during the years 1981-2000. The findings suggest that biomedical firms use continuations to lengthen the duration of patents protecting their most valuable ideas, while electronics and semiconductor firms use the process to augment the size of their patent portfolios. Firms use different types of continuations - the Continuation Application, the Continuations-In-Part, and Divisions - for different ends. Hence, U.S. patent laws, and their reform, can benefit from a closer consideration of the type of continuation filed by applicants.
