Multi-layer Profit Sharing and Innovation

Filippo Belloc (University of Siena)

Abstract : In this paper, we measure whether contractual profit sharing (PS) influences firm innovation and, if yes, how. We disentangle PS effects for different and possibly conflicting interest groups within the firm. We exploit the fact that PS schemes rarely cover the workers all together, but more often than not are used at some layer in the corporate hierarchy and not at others. Based on the analysis of a representative sample of Italian firms, the key contribution of the study is to show that the structure of PS plans matters significantly for innovation. While PS for managers is associated with little or no improvement in innovation activity, PS for non-managers spurs the probability of observing innovation by about 5% to 15%. This may reflect different discount factors of employees at different firm layers. We also document how PS effects, particularly for non-managers, change depending on other firm level variables, such as size, unionization, the span of managerial control and some characteristics of the workforce. Policy implications are discussed.

Innovation in the U.s. Government

Joshua Bruce (University of Illinois)
John de Figueiredo (Duke University)

Abstract : This paper examines the U.S. government’s intramural research and development efforts over a 40-year period, drawing together multiple human capital, government spending, and patent datasets. The U.S. Federal Government innovates along four dimensions: technological, organizational, regulatory, and policy. After discussing these dimensions, the paper focuses on the inputs to and outputs of government intramural technological innovation. We measure innovative effort and results by accounting for the government scientists and dollars committed to R&D and patents created with government involvement. Overall, we show that intramural innovations, measured by government-assigned patents, are slightly more original and general, but less cited, than patents awarded to private-sector companies and extramural organizations patenting in the same technology classes. The majority of the 200,000 federal government scientists work at the Department of Defense, the Department of Energy, and NASA, and are largely in physical science and engineering occupations; the scientific expertise of other agencies is heavily weighted toward mathematics, social sciences, and data analytics. As these latter disciplines’ innovative outputs are less readily catalogued with patents, measuring total government innovative output with government-assigned patents is likely to over-emphasize innovations in engineering and physical sciences while under-reporting intramural innovations in other disciplines. We discuss the implications of our findings for both public- and private-sector innovation efforts and pose questions for future research.

Information, Beliefs and Resource Allocation in Competitive Markets: the Impact of It and Big Data on Smes

Jose E. Galdon-Sanchez (Universidad Publica de Navarra)
Ricard Gil (Queen's University)
Guillermo Uriz-Uharte (University College London)

Abstract : Technology may improve communication and coordination of resources within firms, but it may also provide information about the firms’ competitive environment. While the existing literature has focused on the former, using large corporations as empirical context, the study of the latter is scant. We fill this gap in the literature by evaluating the impact of a “big data” information technology diffused by a large Spanish bank among its small and medium-size business customers. Using proprietary data on credit card transaction information, we show that technology adoption increases establishment revenue by 9%. The main mechanism behind this result appears to be the information technology prompting establishments to target existing, yet unexploited, business opportunities. Consistent with this mechanism, we find that adopting establishments increase their sales to underserved customer segments. Not only they increase their number of customers, their new customers also come from underrepresented geographic areas and gender-age groups in their customer portfolio prior to adoption. Our evidence also suggests that establishments improve their resource allocation efficiency upon technology adoption.

How Innovating Firms Manage Knowledge Leakage: a Natural Experiment on Worker Mobility

Hyo Kang (University of Southern California)
Wyatt Lee (University of Toronto)

Abstract : Innovating firms face a risk of knowledge leakage as their workers can exit employment to join competitors. We study worker mobility as the key mechanism through which firms decide on strategies to protect innovation outputs. Our empirical analysis exploits a 1998 court case decision whereby the California Courts of Appeal ruled that out-of-state non-compete agreements are not enforceable in California. Consequently, non-California firms faced a loophole in the enforcement of non-competes for their previously bound workers. When facing the higher mobility of existing workers, firms strategically increase patent filings as a means of knowledge protection. Further tests support our theoretical account that worker mobility plays a crucial role in patenting decisions. The importance of worker mobility and leakage-by-leaving problem has significant scholarly and managerial implications.