Research Papers

“Firm Size, Innovation Dynamics and Growth” (Job Market Paper)  [DOWNLOAD]

This paper investigates the relationship between the size of the firm and the quality of
innovations of the firm. Much of the previous literature on innovation focuses on innovation
frequency with an economy-wide uniform innovation quality. In contrast to the previous liter-
ature, this paper allows firms to choose not only the stochastic innovation frequency but also
the innovation quality and focuses on how this heterogeneity in innovation quality is affected
by the size of the firm. This paper has three distinct contributions:
First, using Compustat firms and their patent applications, I document the following three
reduced form facts: i) Firm sales growth (both short-run and long-run) is negatively related
to the firm size. ii) Firm R&D intensity, defined as R&D expenses over sales is negatively
related to the firm size. iii) The quality of innovation, proxied by the number of citations that
a patent receives, is negatively related to the firm size.
Second, I build a tractable general equilibrium growth model that is rich enough to investi-
gate these empirical results. I prove the existence of the equilibrium, characterize its properties
and show that the predictions of the theoretical model are consistent with the reduced form
evidences mentioned above.
Third, I structurally estimate the theoretical model parameters using Simulated Method
of Moments on Compustat firms. Finally, I use these estimated parameters to conduct a macro
policy experiment to evaluate the effects of a size-dependent R&D subsidy on different sized
firms. In conclusion of this analysis, the optimal size-dependent R&D subsidy policy does
considerably better than optimal uniform (size-independent) policy. More interestingly, the
optimal (welfare-maximizing) policy provides higher subsidies to smaller firms.

“State Dependent Intellectual Property Rights Policy,” submitted
(joint with Daron Acemoglu) [DOWNLOAD]
What form of intellectual property rights (IPR) policy contributes to economic
growth? Should a company with a large technological lead receive the same IPR
protection as a company with a more limited advantage? Should technological
followers be able to license the products of technological leaders? We develop a
general equilibrium framework to investigate these questions. The economy consists
of many industries and firms engaged in cumulative (step-by-step) innovation. IPR
policy regulates whether followers in an industry can copy the technology of the
leader and also how much they have to pay to license past innovations. With full
patent protection, followers can catch up to the leader in their industry either by
making the same innovation(s) themselves or by making some pre-specified
payments to the technological leaders.
We prove the existence of a steady-state equilibrium and characterize some of its
properties. We then quantitatively investigate the implications of different types of
IPR policy on the equilibrium growth rate and welfare. The two major results of this
exercise are as follows. First, the growth rate and welfare in the standard models used
in the (growth) literature can be improved significantly by introducing a simple form
of licensing. Second and more importantly, full patent protection is not optimal from
the viewpoint of maximizing welfare; instead, welfare-maximizing (and growthmaximizing)
policy involves state-dependent IPR protection, providing greater
protection to technological leaders that are further ahead than those that are close to
their followers. This form of the welfare-maximizing policy is a result of the
“trickledown” effect, which implies that providing greater protection to firms that are
further ahead of their followers than a certain threshold increases the R&D incentives
also for all technological leaders that are less advanced than this threshold.