Paolo Zacchia - IMT Institute for Advanced Studies Lucca
In this paper I directly test the hypothesis that interactions between inventors of different firms drive knowledge spillovers. I construct a network of publicly traded companies where each link is a function of the relative proportion of two firms’ inventors who have patent coauthors in both organizations. I use this measure to weigh the impact of R&D performed by each firm on the productivity and innovation outcomes of its neighbors. An empirical concern is that the resulting estimates may reflect unobserved, simultaneous drivers of both R&D and firm performance. I address this problem with an innovative IV strategy, motivated by a game-theoretic model of firm interaction. I instrument the R&D choices of one firm’s neighbors with those of firms that are sufficiently distant in the network. With the resulting spillover estimates, I calculate that the marginal social return of R&D amounts to approximately 24% of the marginal private return.