Innovation Quality and Public Health: Quasi-Experimental Evidence from States

The past two decades witnessed a tremendous shift in public health policies worldwide towards marijuana legalization. Extant research suggests the potential benefits of marijuana legalization such as increasing the number of patents applied and providing otherwise unavailable workforce due to medical conditions. However, how such public health policy affects local knowledge workers is less studied. Using the staggered passage of medical marijuana laws by twenty U.S. states between 1996 and 2013, we study the relationship between the public health policy and innovation quality. We find that although states’ medical marijuana legalization increases the number of patent applications, but at the same time it reduces the local innovation quality by 11%, suggesting that legalizing medical marijuana causes an adverse spillover effect on the performance of local knowledge workers. We strengthen our identification by comparing neighboring counties at state boarders with a difference in marijuana regulation, examining the tentative mechanism that explains our findings, and assessing the moderating effect of state and county-level characteristics. We further explore the potential heterogeneous effects of marijuana legalization on the quality of innovations within different technology categories. These findings highlight the relevance of public health to local businesses and talent management and provide timely evidence on an unmentioned negative effect of an important public health policy on innovation.