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Employed inventors, inter-firm mobility, bonus pay with multi-stage R&D processes, and optimal innovation policy

Author

Abstract
A temporary change in pay to employed inventors around the time of patent application has been observed in a number of countries. A theoretical model is here developed to provide an explanation to said findings based on the idea that inventors may be able to use the knowledge previously generated while working in a firm, in a rival company. The model features firms who hire workers in R&D functions to make product innovations. The innovation process consists of distinct phases separated by a patent application. Firms compete to attract workers, and workers can transfer part of the generated new knowledge to a new employer. Results suggest that the capital intensity of R&D investments, and the type and size of knowledge spillovers, may affect the probability to observe bonus pay at the time of a patent application. Different tax incentives and subsidies are then studied as a means to correct for possible under-investment of capital. We study the effect of a patent box, a subsidy to R&D capital investments, and a subsidy to bonus pay. When market rivalry prevails over positive knowledge externalities, a bonus pay incentive was found to obtain the social first-best while a patent box or a subsidy to capital investment would cause overinvestment. When positive knowledge externalities prevail, either a patent box or a subsidy to capital investment obtain the social optimal level of capital investments.

Suggested Citation

  • Diego d'Andria, 2016. "Employed inventors, inter-firm mobility, bonus pay with multi-stage R&D processes, and optimal innovation policy," JRC Working Papers on Taxation & Structural Reforms 2016-02, Joint Research Centre.
    • Handle: RePEc:ipt:taxref:201602
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    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC104088
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    References listed on IDEAS

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    More about this item

    Keywords

    innovation; bonus pay; moving researchers; patents; R&D tax incentives;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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