DP3623 Research Productivity and Patent Quality: Measurement with Multiple Indicators

Author(s): Jean O Lanjouw, Mark Schankerman
Publication Date: October 2002
Keyword(s): market value, patent quality, R&D productivity, technological exhaustion
JEL(s): O31, O32
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3623

We analyse the determinants of the decline in measured research productivity (the patent/R&D ratio) using panel data on manufacturing firms in the US for the period 1980-93. We focus on three factors: the level of demand, the quality of patents, and technological exhaustion. We first develop an index of patent ‘quality’ using detailed information on patents in the US in seven technology fields. Using a factor model, we construct a minimum-variance index based on four patent characteristics and show that using multiple indicators substantially reduces the measured variance in quality. We then show that research productivity at the firm level is negatively related to the patent quality index and the level of demand, as predicted by an optimizing model of R&D, and positively related to the stock market valuation of patented innovations held by firms.