1. University Innovation and the Professor’s Privilege
SOL, NHH, October 2016
Hans Hvide, Bergen and CEPR
Ben Jones, Kellogg and NBER
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2. Why universities? Research Teaching
Innovation & Commercialization: a «third leg»?
Pan-European debate in the 90-ies
Motivated by the US

3. Pain medication lyrica. Genentech is a biotech firm.

4. What policies promote innovation by university workforces?
Question
What policies promote innovation by university workforces?
Experiment
End of the “professor’s privilege” in Norway.
Examine (1) start-ups and (2) patenting.
Question: What balance of rent-sharing between a researcher and the university promotes the most innovation?

5. The “Professor’s Privilege” Reform
Norway eliminates “professor’s privilege” as of 2003
Establishment of TTOs
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)
Prior Policy
New Policy
University researchers held full rights to their innovations
Income shared between researcher (1/3) and university (2/3)
Big unis are Oslo, Bergen, NTNU (Trondheim), Tromso, Stavanger

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

7. Example from a CES Production Function
University
investment
Researcher
investment
Innovative
income
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8. Data Startups (2000-2007) Patents (1995-2010) Individual census
Business census
Match: owner ID to individual ID
All NPO patents
University employee database
Match: Inventor names
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Treated group: university researchers, defined as workers who are employed at university and have Ph.D.
Several control groups

9. Finding: Start-Up Rates per Worker
Beginning
of reform

10. Finding: Patent Rates per Worker
Beginning
of reform
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11. Entrepreneurship Analysis
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12. Summary Statistics for Entrepreneurs
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13. Entrepreneurship: Quantity
Panel
Aggregate
Sectoral
Individual
Control Group
All Norway
Non-Uni PhDs
PS match
DiD Finding
69% decline (***)
52% decline (**)
43% decline (**)
58% decline (***)
40% decline (*)
46% decline (**)
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Same among “stayers”, suggesting intensive margin

14. 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
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15. Patenting Analysis
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16. Data: Summary Statistics

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

18. Discussion #1: University Commercialization Policy
What policies encourage university-based innovation?
Experiment compares two policy regimes:
Give all rights to individual researcher
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
We find very strong negative effects of reform
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
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19. Discussion #2: Tax 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
We find very large effects of reform – does it mean that change in tax code would have a similar effect for all budding entrepreneurs?
Current reform involves both increase in effective tax rate and transfer of control rights. Control rights could play a role if
- Different preferences (uni prefers profitability, prof survival)
- University holds up professor
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20. 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.
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21. Thank You
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22. Individual Regressions: All Workers
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Individual-level controls (sex, marital status, lagged income and wealth, education dummies, age FE, individual FE) turn out to make little difference

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

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

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