This paper is an attempt to raid both the literature on modular design and the literature on property rights to create the outlines of a modularity theory of the firm. Such a theory will look at firms, and other organizations, in terms of the partitioning of rights—understood as protected spheres of authority—among cooperating parties. And it will assert that organizations reflect nonmodular structures, that is, structures in which decision rights, rights of alienation, and residual claims to

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Modern Capitalism has proved a remarkably powerful engine of technological progress. Most of the attention to its workings has focussed on the business firms and entrepreneurs, operating in a market setting, who are the central actors in developing and introducing new products and processes.. At the same time it is widely recognized that the power of market stimulated and guided invention and innovation often is

An anticommons problem arises when there exist multiple rights to exclude. In a lengthy law review paper, Michael A. Heller has examined ‘‘The Tragedy of the Anticommons,’ ’ especially in regard to disappointing experiences with efforts to shift from socialist to market institutions in Russia. In an early footnote, Heller suggests that a formal economic model of the anticommons has not been developed. This paper responds to Heller’s challenge. We analyze the anticommons problem in which resources are inefficiently underutilized rather than overutilized, as in the familiar commons setting. The two problems are shown to be symmetrical in several respects. We present an algebraic and geometric illustration and extend the discussion to several applications. Of greater importance, we suggest that the construction is helpful in understanding the sources of major value wastage in modern regulatory bureaucracy. The navigation of the Danube is of very little use to the different

In this paper we empirically evaluate the relationship between R&D incentives and the patent premium, defined as the additional payoffs due to patenting an innovation relative to payoff to the unpatented innovation. What is the expected average premium, if any? Does it vary across industries? What would be the impact of increasing the premium on R&D investment? To answer these questions, we develop a model linking a firm’s R&D with its decision to patent for product innovations. The model assumes that R&D investments depend upon the expected value of an innovation, which is itself a function of expected premium if the innovation is patented, assuming that the firm will choose to patent optimally i.e., only if the expected payoff from patenting an innovation is greater than the expected cost. The patent premium, is modeled as a random variable specific to an innovation, whose distribution depends on unobserved firm characteristics. We estimate the model with a unique data set drawn from the 1994 Carnegie Mellon Survey on Industrial R&D in the United States, which allows us to develop measures of R&D, patent propensity, patent effectiveness, and information flows from other firms and universities, among other variables, at the R&D lab level. We find that on average patents provide a positive expected premium in only a few industries, namely drugs, biotech and medical instruments, with machinery, computers, and

* Acknowledgements: We thank each of the scientists who graciously offered their insights, the personnel of the American Type Culture Collection, and especially Dr. Raymond Cypess and

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Organizational theorists have built a deep understanding of the conditions affecting knowledge sharing. However, for innovation to occur, knowledge must not just be shared, but also reused, recombined, and accumulated. Such accumulation is not inherent to the innovation process but can be either supported or limited by the context in which it occurs. We propose a framework arguing that three conditions shape this context: disclosure, access, and rewards. We show how these conditions operate at the institutional, field, community, and organizational levels. Our framework highlights how when innovators encounter barriers to the accumulation of knowledge, their solutions are often organizational ones rather than legal ones. This suggests an expanding terrain for organizational scholars interested in debates often dominated by law and economics.

This paper estimates the determinants of the private economic value of patents from a novel and unusually comprehensive dataset built from a questionnaire survey of European EPO patents. We find that the resource investments made in the research leading to the patent are an important determinant of the value of patents. We also find that the characteristics of the individual inventor (his past patents, motivation) are a more important determinant of the private value of patents than the characteristics of the organization in which he is employed (e.g. its past patents), or the location in which the invention is carried out. Our study then supports the view that the invention business is about investments of resources and human capital more than special organizational designs or local spillovers. To validate our measure, we find that it is correlated with all the most commonly employed proxies of the value of patents.

This paper investigates how patent applications and grants held by new ventures improve their ability to attract venture capital (VC) financing. We argue that investors are faced with considerable uncer-tainty and therefore rely on patents as signals when trying to assess the prospects of potential portfolio companies. For a sample of VC-seeking German and British biotechnology companies we have identi-fied all patents filed at the European Patent Office (EPO). Applying hazard rate analysis, we find that in the presence of patent applications, VC financing occurs earlier. Our results also show that VCs pay attention to patent quality, financing those ventures faster which later turn out to have high-quality pa-tents. Patent oppositions increase the likelihood of receiving VC, but ultimate grant decisions do not spur VC financing, presumably because they are anticipated. Our empirical results and interviews with VCs suggest that the process of patenting generates signals which help to overcome the liabilities of newness faced by new ventures.