Opening the Black Box of Innovation

Abstract

A common feature of the existing patent race and endogenous growth literatures is their representation of R&D activities as being performed by a collection of individuals playing simultaneously the roles of financier, creator, owner, and user of the innovation. In practice, however, R&D takes place either within firms where researchers-inventors are subject to employment contracts, or through contractual agreements between independent research units and users of their innovations. In both cases, the contractual provisions on how to finance the research activities, how to share property rights on innovations, and how to structure the monetary compensations to the inventors, are complex and suggest that the aggregated view of the R&D process may be too limited.