Handbook of Research on Innovation and Entrepreneurship
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Handbook of Research on Innovation and Entrepreneurship

Edited by David B. Audretsch, Oliver Falck, Stephan Heblich and Adam Lederer

Leading researchers use their outstanding expertise to investigate various aspects in the context of innovation and entrepreneurship such as growth, knowledge production and spillovers, technology transfer, the organization of the firm, industrial policy, financing, small firms and start-ups, and entrepreneurship education as well as the characteristics of the entrepreneur.
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Chapter 6: The Role of Patents and Licenses in Securing External Finance for Innovation

Dietmar Harhoff


Dietmar Harhoff INTRODUCTION Economic literature analyzes a number of problems that stand in the way of an efficient allocation of resources to research and development (R&D) and innovation in a market economy. Among those are the well-known externalities that emanate from knowledge having public goods characteristics. Moreover, it is suggested in theoretical and empirical studies that there are financing constraints for particular types of firms and for specific activities, such as R&D. These constraints limit the extent to which firms engage in R&D and innovation, even if no knowledge externalities are present. Recent literature focuses on a third problem and argues that the market for intermediate outputs of the innovation process (such as ideas, patents, licenses, blueprints, prototypes etc.) is incomplete. The first two problems lead to inefficiently low investment in innovation. The third leads to an inefficiently low extent of division of labor, since transactions have to be internalized, and gains from specialization are lost. This chapter is concerned with the latter two problems, which are intricately linked. At the root of them lies the idiosyncratic nature of technology, often following firmspecific paths of development, coupled with asymmetric information on alternative uses, substitutes and values. If a market for intermediate results of innovation processes existed, then the financing constraints of innovative firms would presumably be less pronounced. Intermediate results could be licensed, sold, leased or become part of other financial transactions, which would relax the financing constraints problem. The topic of this chapter is the role...

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