Private and social functions of patents: Innovation, markets, and new firms

This article provides a review of the private and social functions of patents using data and evidence from the economic and management literature. While patents provide incentives to invent by providing private protection to appropriate the returns on inventions, they also have broader effects. For example, in this paper we focus on the fact that they provide signals about the value of new firms, disclose information about the invention, and encourage the exchange of inventions and ideas in markets for technology. In order to better understand the relative importance of the implications of patents, patent agencies and stakeholders should invest to a greater extent in data collections or in creating the conditions for research designs and experiments that nail down causal effects and mechanisms. Available data are not created with these identification strategies in mind, which limits the questions that scholars can ask. Systematic studies that identify different effects of patents can provide the basis for rigorous evidence-based management and policy about patents. This would imply a wider shift from a world in which managerial and policy analysis is distinct from practice, to a world in which analysis and implementation are increasingly co-produced, and there is greater integration between them.