Patent Protection, Market Uncertainty, and R&D Investment

Andrew A. Toole and Dirk Czarnitzki

ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Real options investment theory predicts current investment falls as uncertainty about market returns increases. In the case of R&D investment, which is usually considered an irreversible form of investment, this effect should be quite pronounced. This paper tests the real options prediction about the R&D investment-uncertainty relationship and further considers how patent protection influences this relationship. Patent protection, by limiting the threat of market rivalry, should mitigate firm-specific uncertainty and stimulate current R&D investment. Our empirical results support both the prediction of real options theory and the mitigating effect of patent protection.

Keywords: Real Options Theory; Uncertainty; R&D; Intellectual Property Protection; Censored Regression (search for similar items in EconPapers)
JEL-codes: C25 O31 O33 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-ino, nep-ipr, nep-pr~, nep-mic and nep-tid
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Patent Protection, Market Uncertainty, and R&D Investment (2011)
Working Paper: Patent protection, market uncertainty, and R&D investment (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7191

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