Tuomas Takalo

Do patents slow down technological progress?: Real options in research, patenting, and market introduction

Abstract This paper challenges the widely held view in the industrial organization literature that patents always speed up technological progress. We introduce a model of an innovating firm with uncertain property right to its innovation. The impact of a commitment to an R&D project is to create future options for patenting and market introduction. Each decision undertaken will change the conditions in which the innovator operates. It is shown that an increase in patent protection reduces the elasticity of the option value of the program with respect to the value of the project, raising the threshold value of market introduction and enhancing the ability of the innovator to wait. Thus, while the effect of patent is to raise the rents on and thereby the potential amount of innovations, it also tends to slow down market introduction.

Estimating the benefits of targeted R&D subsidies

We study the expected welfare effects of targeted R&D subsidies using project-level data from Finland. We model the application and R&D investment decisions of firms and the subsidy-granting decision of the public agency in charge of the program. Our model and institutional environment allow us to identify different benefits and costs of the R&D subsidy program. We find that expected effects of subsidies are very heterogeneous and estimated application costs low on average. The social rate of return on targeted subsidies is 30 to 50, but spillover effects of subsidies are smaller than effects on firm profits.

Law or finance: evidence from Finland

Although it is widely acknowledged that the benefits of corporate governance reform could be substantial, systematic evidence on such reforms is scant. We both document and evaluate a contemporary corporate governance reform by constructing 18 measures of shareholder and creditor protection for Finland for the period 1980–2000. The measures reveal that shareholder protection has been strengthened whereas creditor protection has been weakened. We also demonstrate how the reform is consistent with a reorganisation of the Finnish financial market in which a bank-centred financial system shifted from relationship-based debt finance towards increasing dominance by the stock market. We find evidence that the development of shareholder protection has been a driver of the reorganisation, whereas the changes in creditor protection have mirrored market developments.

Simultaneous Model of Innovation, Secrecy, and Patent Policy

Multiple innovators can and do come up with the same invention independently. A famous case is the telephone: two hours after Alexander Graham Bell filed a patent application for it, another application for the same invention arrived at the patent office. Many scholars, such as Ilkka Rahnasto (2003) and Hal R. Varian et al. (2004), argue that since Bell’s time, simultaneous innovation has become increasingly common. We feel, and our discussions with industry practitioners confirm, that the simultaneous model of innovation characterizes especially network industries such as consumer electronics, the Internet, software, telecommunications, and payment systems, where standardization limits the possible paths for future technologies and so firms concentrate their R&D activities on the same fields. We suggest that simultaneous or independent invention has major implications for intellectual property (IP) policy. In particular, the possibility of simultaneous innovation changes the patenting decision: firms tap patents for a defensive purpose, since the choice is no longer between patenting or resorting to trade secrecy, but between patenting or letting competitors patent. By exploiting the vulnerability of innovative firms to rival innovation, it is possible to design a welfareimproving patent system that induces innovators to patent rather than keep their innovations secret. Taking the simultaneous nature of innovation seriously also changes the way one should think about the relationship between IP and competition policies.

Evaluating Innovation Policy: A Structural Treatment Effect Model of R&D Subsidies

This paper studies the welfare effects of R&D subsidies. We develop a model of continuous optimal treatment with outcome heterogeneity where the treatment outcome depends on applicant investment. The model takes into account heterogeneous application costs and identifies the treatment effect on the public agency running the programme. Under the assumption of a welfare-maximizing agency, we identify general equilibrium treatment effects. Applyiing our model to R&D project-level data we find substantial treatment effect heterogeneity. Agency-specific treatment effects are smaller than private treatment effects. We find that the rate of return on subsidies for the agency is 30-50%. Keywords: applications, effort, investment, R&D, selection, subsidies, treatment programme, treatment effects, welfare JEL classification numbers: 038, 031, L53, C31

Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers

We provide evidence that increasing consumer awareness may have been underlying the rise of debit card use. We find that consumers typically use multiple payment media and that this behavior is closely related to the use of debit cards besides cash. Moreover, it turns out that the use of multiple payment media is directly related to consumer awareness but that not controlling for the endogeneity of awareness can bias its effect downwards. Conditional on the use of multiple payment methods, however, awareness does not distinguish those making debit a primary payment method from those making it secondary to cash.

R&D spillovers and information exchange

Abstract We show that the spillover of R&D can be endogenised in a sense that even without spillovers firms have an incentive to exchange the R&D information after the investment costs are sunk.

Enhancing bank transparency : A re-assessment

Transparency regulation aims at reducing financial fragility by strengthening market discipline. There are however two elementary properties of banking that may render such regulation inefficient at best and detrimental at worst. First, an extensive financial safety net may eliminate the disciplinary effect of transparency regulation. Second, achieving transparency is costly for banks, as it dilutes their charter values, and hence it also reduces their private costs of risk-taking. We consider both the direct costs of complying with disclosure requirements and the indirect transparency costs stemming from imperfect property rights governing information and specify the conditions under which transparency regulation can (and cannot) reduce financial fragility.

Innovation and imitation under imperfect patent protection

The paper develops a model in which the spillover of R&D is a consequence of a rational investment in imitation. The model incorporates the innovators choice between patenting and secrecy as a protection device. The analysis demonstrates that an increase in patent breadth always discourages resorting to secrecy, whereas the influence of increased patent life is the opposite with large spillovers. An increase in patent life can also reduce innovative activity with large spillovers. Under endogenous imitation, short patents are socially optimal.

Rationales and Instruments for Public Innovation Policies

Economic interest in innovation policy largely arises from the fundamental importance of innovation to social welfare and from inefficiencies in innovation in a competitive market environment. As a result, a wide variety of public innovation policies are used in practice. This study reviews the economic justifications for public innovation policies and compares the existing policy tools, paying particular attention to the Finnish innovation policy environment.