The aim of this project is to understand whether the supply of inventions is responsive to changes in relative economic rewards.
While innovation is a fundamental driver of long-term economic growth, inventing is a high-risk activity and little is known about the characteristics and economic circumstances of individuals who take on such risk. Insights from this research can inform policies that determine the efficiency and production choices of such highly skilled individuals. The proposed project analyses the effect of reward changes on inventive activity by exploiting data on inventors in nineteenth century Britain, on the patent fees they paid, and on yearly wages by occupation and county.
The Responsiveness of Inventing: Evidence from a Patent Fee Reform
The Responsiveness of Inventing: Evidence from a Patent Fee Reform, Alice Kuegler (2021)
Inequality leads to a misallocation of talent when individuals are credit constrained. This paper studies such misallocation by tracing the effects of a large reduction in the cost of patenting on innovation. I exploit a patent fee reform in the United Kingdom in 1884 to investigate the responsiveness of inventors, and create a novel dataset on 54,000 inventors and their patent renewals. The reduction in the cost of inventing leads to a considerable and persistent rise in the quantity of lower- and high-quality ideas patented. Inventors respond strongly by delaying to patent lower-quality ideas before the reform and by bunching patents just after the reform. Innovation, as proxied by high-quality patents, increases in the longer run with an elasticity of 1.25. To test for the presence of credit constraints I generate two proxy measures of wealth using inventor names and addresses, and find a larger innovation response for poorer inventors. These results indicate efficiency gains from decreasing the cost of inventing and in addition, from relaxing credit constraints.
