Research
The Breakup of Bell and its Impact on Innovation
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In 1984, after a a seven-year lawsuit, the Bell System was broken up, resulting in the largest corporate reorganization in history. The aim was to open up the markets for telecommunications equipment and for long-distance telephone services for competition. In this paper we show that this break-up and the regulatory interventions preceding it had a substantial long-term impact on U.S. innovation. We argue that before the antitrust case, Bell could extend its market power from being the regulated provider of short-distance telephone services to the potentially competitive markets for long-distance services and for telecommunications equipment manufacturing by restricting access to this essential facility, its local network. We discuss how regulation and the breakup changed access to the telecommunications network and why this increased innovation. Our study provides lessons for the evaluation of today’s dominant providers in tech markets.
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Draft coming soon
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ICT, Collaboration, and Science-Based Innovation: Evidence from BITNET
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Does access to information and communication technologies (ICT) increase innovation? We examine this question by exploiting the staggered adoption of BITNET across U.S. universities in the 1980s. BITNET, an early version of the Internet, enabled e-mail-based knowledge exchange and collaboration among academics. After the adoption of BITNET, university-connected inventors increase patenting substantially. The effects are driven by collaborative patents by new inventor teams. The patents induced by ICT are exclusively science-related and stem from fields where knowledge can be codified easily. In contrast, we neither find an effect on patents not building on science nor on inventors unconnected to universities.
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Standing on the shoulders of science
with Monika Schnitzer, LMU
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The goal of science is to advance knowledge, yet little is known about its value for marketplace inventions. While important breakthrough technologies could not have been developed without scientific background, skeptics argue that this is the exception rather than the rule, questioning the usefulness of basic research for private sector innovations and the effectiveness of the knowledge transfer from university to industry. We analyze the universe of U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show that a patent that directly builds on science is on average 2.9 million U.S. dollars more valuable than a patent in the same technology that is unrelated to science. Based on the analysis of the patent text, we show second that the novelty of patents predicts their value, and third that science-intensive patents are more novel. This documents that science introduces new concepts that are valuable for marketplace inventions. Our study informs the debate on the merits of science for corporate innovation and the origins of breakthrough inventions.
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Job Creation in Tight and Slack Labor Markets
with Matthias Wilhelm and Lukas Buchheim
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Do investment programs create more jobs in tight or in slack labor markets? We study this question using data from a large, long-term photovoltaic invest scheme in Germany. Comparing counties with high and low unemployment both over time and across space, we find that photovoltaic installations created at least twice as many jobs in slack than in tight labor markets. Our results suggest that the differences in job-creation are not driven by changes in the composition or prices of investment, capital-labor substitution, or regional migration. This leaves crowding-out as the most plausible mechanism.
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The Employment Effects of Countercyclical Infrastructure Investments
with Lukas Buchheim, LMU Munich
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We estimate the causal impact of a sizable German infrastructure investment program on employment at the county level. The program focused on improving the energy efficiency of school buildings, making it possible to use the number of schools as an instrument for investments. We find that the program was effective, creating one job for one year for each €25’000 of investments. The employment gains reached their peak after nine months and dropped to zero quickly after the program’s completion. The reductions in unemployment amounted to two-thirds of the job creation, and employment grew predominately in the construction and non-tradable industries.
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How antitrust can spur innovation: Bell Labs and the 1956 consent decree
with Thomas Fackler, Markus Nagler and Monika Schnitzer, LMU Munich
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Is compulsory licensing an effective antitrust remedy to increase innovation? To answer this question, we analyze the 1956 consent decree which settled an antitrust lawsuit against Bell, a vertically integrated monopolist charged with foreclosing the telecommunications equipment market. Bell was forced to license all its existing patents royalty-free, including those not related to telecommunications. We show that this led to a long-lasting increase in innovation but only in markets outside the telecommunications industry. Within telecommunications, where Bell continued to exclude competitors, we find no effect. Compulsory licensing is an effective antitrust remedy only if incumbents cannot foreclose the product markets.
Excess citations to Bell Labs patents
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VoxEU Link to CEPR Discussion Paper American Economic Journal: Economic Policy 12.4 (2020): 328-59. |
Measuring the Spillovers of Venture Capital
with Monika Schnitzer, LMU Munich
We provide the first measurement of knowledge spillovers from venture capitalfinanced companies onto the patenting activities of other companies. These spillovers are nine times larger than those generated by the corporate R&D of established companies. The effects are heterogenous, depending on who generates the spillover and who is the likely recipient. In general, complex product industriestend to be more conducive to spillovers than discrete product industries. Spillovers are stronger for investments in a small set of start-ups that are characterized by an inventor team with prior patenting experience and that have a patented technology before receiving their first round of investment. This points to a complementarity between the supply of venture capital on the one hand and access to experience and technology on the other hand. The methodological contribution of our paper is the development of a novel definition of the spillover pool that combines elements of the citation-based and technological proximity-based approaches.
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Disclosure and Cumulative Innovation:
Evidence from the Patent Depository Library Program
with Jeff Furman, BU and Markus Nagler , LMU
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How important is information disclosure through patents for subsequent innovation? To answer this
question, we examine the expansion of the USPTO Patent Library system after 1975. Before the Internet, patent libraries gave inventors access to patent documents. We find that after patent library opening, local patenting increases by 17% relative to control regions. Additional analyses suggest that the disclosure of technical information is the mechanism underlying this effect: inventors start to cite more distant prior art and the effect ceases after the introduction of the Internet. Our analyses thus provide evidence that disclosure plays an important role in cumulative innovation. 
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NBER WP Blog Brooking Institute Cato Policy Brief conditionally accepted at AEJ: Economic Policy |
The Allocation of Talent over the Business Cycle and its Long-Term Effect on Sectoral Productivity
with Michael Böhm, University of Bonn
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It is well documented that graduates enter different occupations
in recessions than in booms. In our article, we examine the impact of the
resulting change in the allocation of talent for long-term productivity and
output in a sector. In a setting where output can be quantitatively and
qualitatively measured, we find evidence that talent flows to stable sectors in
recessions and to cyclical sectors in booms: economists starting or graduating
from their PhD in a recession are significantly more productive in academia
over the long term than economists starting or graduating in a boom.
Difference in research output between boom and recession cohorts over the long term
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Contract Enforcement and R&D Investment
with Michael Seitz, LMU Munich
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Motivated
by the differences in innovation intensity across countries, this paper
evaluates the role of contract enforcement for R&D investments. If
contracts for inputs are incomplete and contract enforcement is weak,
innovative companies can be exploited by their suppliers. This reduces the incentive
to invest in R&D. We find evidence supporting this prediction in the data:
R&D investment increases with the quality of the judicial system and this
effect is particularly strong in industries that depend more on bilateral
contracts to acquire inputs and in which vertical integration is not a
viable option.
Rule of law of a country vs. its R&D intensity
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The Effect of a Credit Crunch on Equilibrium Market Structure
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This article examines the impact of a credit crunch on
market structure. We construct and simulate a dynamic model of a duopolistic
industry in which firms’ investments in capacity are constrained by the
availability of credit. In such an industry, the dynamic interaction of credit
limits and the competitive responses of firms turn out to be a powerful transmission
mechanism by which the effects of shocks persist and are amplified. We show
that a small, temporary shock to one firm’s capacity can lead to its market
exit, even if it is equally productive as the remaining incumbent.
Consequently, if a recession is accompanied by a credit crunch, its cleansing
effect might lead to monopolization of markets.
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Equilibrium capacity distribution in a duopoly with credit constraints
The
Capital Gains Tax: A Curse but Also a Blessing for Venture Capital
Investment
with Carolin Bock, TU Darmstadt
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Our study shows a negative association between the number and success of venture capital
investments and the capital gains tax rate. This analysis uses the investment
and tax data of 32 countries from 2000 to 2012. Our results support the
theoretical predictions that higher capital gains tax rates are associated with
fewer start-ups financed and a lower probability of receiving follow-up
funding. However, if a company receives its initial funding despite a higher
tax burden, its probability of success increases. Therefore, our findings are
in line with a selection effect of taxes.
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Illustration of the selection mechanism