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University Innovation and the Professor’s Privilege 13 July 2015 NBER Entrepreneurship Workshop Hans Hvide, Bergen and CEPR Ben Jones, Kellogg and NBER.

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Presentation on theme: "University Innovation and the Professor’s Privilege 13 July 2015 NBER Entrepreneurship Workshop Hans Hvide, Bergen and CEPR Ben Jones, Kellogg and NBER."— Presentation transcript:

1 University Innovation and the Professor’s Privilege 13 July 2015 NBER Entrepreneurship Workshop Hans Hvide, Bergen and CEPR Ben Jones, Kellogg and NBER

2 What policies promote innovation by university workforces? Question Experiment End of the “professor’s privilege” in Norway. Examine (1) start-ups and (2) patenting.

3 The “Professor’s Privilege” Reform  Norway eliminates “professor’s privilege” as of 2003  Similar reform in Germany, Austria, Denmark, and Finland; New policy similar to U.S. norms  Motivation: emulating U.S. will lead to more innovation (Lissoni et al. 2008, Czarnitzki et al. 2008) University researchers held full rights to their innovations Income shared between researcher (1/3) and university (2/3) Prior PolicyNew Policy

4 A Theoretical Basis? (Aghion and Tirole 1994, Scotchmer 2004, Holmstrom 1982, etc.)

5 Example from a CES Production Function Researcher investment University investment Innovative income

6 Data 1)Individual census 2)Business census Match: owner ID to individual ID  Treated group: university researchers, defined as workers who are employed at university and have Ph.D. Startups (2000-2007) 1)All NPO patents 2)University employee database Match: Inventor names Patents (1995-2010)

7 Finding: Start-Up Rates per Worker Beginning of reform

8 Finding: Patent Rates per Worker Beginning of reform

9 Entrepreneurship Analysis

10 Summary Statistics for Entrepreneurs

11 Entrepreneurship: Quantity Panel Aggregate Sectoral Individual Control Group All Norway Non-Uni PhDs All Norway Non-Uni PhDs All Norway Non-Uni PhDs PS match DiD Finding 69% decline (***) 52% decline (**) 43% decline (**) 58% decline (***) 40% decline (*) 46% decline (**)  Same among “stayers”, suggesting intensive margin

12 Entrepreneurship: Quality  Accounting measures  In general, very few startups show substantial growth…  After reform, university startups show increased failure rates and fewer sales by 5 years, although effects are statistically weak  Technology intensity  Prior to reform, 27% of university start-ups were in higher technology sectors and 12% obtained a patent within 5 years of founding  After reform, 17% were in higher technology sectors and 2% obtained patent within 5 years

13 Patenting Analysis

14 Data: Summary Statistics

15 Patents: Quantity and Quality Panel Aggregate Individual Control Group Non-uni inventors DiD Finding 52% decline (***) 38% decline (***)  Quality  26% decline (**) in average citations received  Quantity

16 Discussion #1: University Commercialization Policy  What policies encourage university-based innovation? Experiment compares two policy regimes: 1)Give all rights to individual researcher 2)Use a one-third / two-third split of royalties, with university control  Regime (2) prevalent, e.g., in countries that removed the professor’s privilege and in the U.S. after Bayh-Dole Act  Is Norwegian experience representative?  Would other countries (incl. U.S.) see start-ups and patenting by university researchers double were researchers given 100% rights?  c.f., Lissoni 2008, Lach and Schankerman 2008, Czarnitski et al. 2015, Astebro et al. 2015

17 Discussion #2: Broader Applications  Property rights in innovation  Canonical theories in economics of innovation emphasize challenge of property rights allocation (Aghion & Tirole 1994; Green and Scotchmer 1995, etc.)  Here, evidence in line with this emphasis, showing very large effects on entrepreneurship and patenting  Taxes and entrepreneurship  Literature (e.g., Hubbard & Gentry 2000, Bruce & Gurley 2005) focuses on self-employed and sole proprietors, who may not play important roles in creating new ideas and driving growth  How does entrepreneurship by university researchers, who stand at knowledge frontier, respond to effective tax rates?  Lower bound argument: Policy reform not a simple tax, but given complementarities with university investments, simple tax increase would cause entrepreneurship to fall even more

18 Summary  Natural experiment: End of “professor’s privilege”  Find ~50% decline in quantity of (1) new venture formation and (2) patenting. Quality measures decline as well.  Application to university commercialization policy; also, rent-sharing in innovation and taxes/entrepreneurship.

19 Thank You

20 Literature #2: Rent Sharing and Innovation  Canonical theories about importance (and difficulty) of balancing rent- sharing across investing parties to encourage innovation (Aghion & Tirole 1994; Green and Scotchmer 1995).  What rent-sharing regime between a researcher and the university can best promote innovative outcomes?  Professor’s privilege reform provides a natural experiment to study whether/how a large change in the rent-sharing regime affects innovation in practice.

21 Literature #3: Taxes and Entrepreneurship  Literature on tax rates and “entrepreneurship” (e.g., Hubbard & Gentry 2000, Bruce & Gurley 2005) focuses on self-employed and sole proprietors, who may not represent kinds of entrepreneurship thought to play important roles in creating new ideas and driving growth (Glaser 2007, Levine & Rubinstein 2015).  How does entrepreneurship by researchers, who stand at frontier of science and technology, respond to effective tax rates?  Entrepreneurs in general may have motivations beyond income, and university-based researchers may value income less than others (e.g. Evans and Leighton 1989, Stern 2004, Roach and Sauermann 2012, 2014)  Professor’s privilege reform can inform how a large increase in effective tax rates on researchers influences their start-up activity

22 Researcher’s Innovative Effort c 1-s Slope is F E s=0s=1 G

23 Individual Regressions: All Workers  Individual-level controls (sex, marital status, lagged income and wealth, education dummies, age FE, individual FE) turn out to make little difference

24 Individual Regressions: Similar Workers Table 4 Startups, Individual Level, Similar Workers  Large effects also appear when restricting to relatively similar workers for control sample

25 Aggregate Regressions  Patent rate per university researcher drops ~50% in post-period compared to non-university inventors.

26 Individual Regressions: All Inventors  University inventors become like “normal” inventors in terms of patenting rate, conditional on patenting at least once.

27 What is the right balance of rents? Professor’s privilege The 1/3 rd norm …and letting researcher choose both investments would produce more innovative income than maximum possible here.

28 Discussion #3: Taxes and Entrepreneurship  How does entrepreneurship by university researchers, who stand at knowledge frontier, respond to effective tax rates?  Negatively.  Start-up rate falls ~50%, given a similar increase in tax rate.  Lower bound argument.  Policy reform not a simple tax.  But given complementarities with university investments, simple tax increase would cause entrepreneurship to fall even more (under reasonably general theoretical conditions). c 1-s Slope is F E s=0s=1 G


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