University Innovation and the Professor’s Privilege SOL, NHH, October 2016 Hans Hvide, Bergen and CEPR Ben Jones, Kellogg and NBER Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Why universities? Research Teaching Innovation & Commercialization: a «third leg»? Pan-European debate in the 90-ies Motivated by the US

Pain medication lyrica. Genentech is a biotech firm.

What policies promote innovation by university workforces? Question What policies promote innovation by university workforces? Experiment End of the “professor’s privilege” in Norway. Examine (1) start-ups and (2) patenting. Question: What balance of rent-sharing between a researcher and the university promotes the most innovation?

The “Professor’s Privilege” Reform Norway eliminates “professor’s privilege” as of 2003 Establishment of TTOs Similar reform in Germany, Austria, Denmark, and Finland; New policy similar to U.S. norms Motivation: emulating U.S. will lead to more innovation (Lissoni et al. 2008, Czarnitzki et al. 2008) Prior Policy New Policy University researchers held full rights to their innovations Income shared between researcher (1/3) and university (2/3) Big unis are Oslo, Bergen, NTNU (Trondheim), Tromso, Stavanger

A Theoretical Basis?   Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. (Aghion and Tirole 1994, Scotchmer 2004, Holmstrom 1982, etc.)

Example from a CES Production Function University investment Researcher investment Innovative income Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.      

Data Startups (2000-2007) Patents (1995-2010) Individual census Business census Match: owner ID to individual ID All NPO patents University employee database Match: Inventor names Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. Treated group: university researchers, defined as workers who are employed at university and have Ph.D. Several control groups

Finding: Start-Up Rates per Worker Beginning of reform

Finding: Patent Rates per Worker Beginning of reform Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Entrepreneurship Analysis Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Summary Statistics for Entrepreneurs Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Entrepreneurship: Quantity Panel Aggregate Sectoral Individual Control Group All Norway Non-Uni PhDs PS match DiD Finding 69% decline (***) 52% decline (**) 43% decline (**) 58% decline (***) 40% decline (*) 46% decline (**) Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. Same among “stayers”, suggesting intensive margin

Entrepreneurship: Quality Accounting measures In general, very few startups show substantial growth… After reform, university startups show increased failure rates and fewer sales by 5 years, although effects are statistically weak Technology intensity Prior to reform, 27% of university start-ups were in higher technology sectors and 12% obtained a patent within 5 years of founding After reform, 17% were in higher technology sectors and 2% obtained patent within 5 years Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Patenting Analysis Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Data: Summary Statistics

Patents: Quantity and Quality Panel Aggregate Individual Control Group Non-uni inventors DiD Finding 52% decline (***) 38% decline (***) Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. Quality 26% decline (**) in average citations received

Discussion #1: University Commercialization Policy What policies encourage university-based innovation? Experiment compares two policy regimes: Give all rights to individual researcher Use a one-third / two-third split of royalties, with university control Regime (2) prevalent, e.g., in countries that removed the professor’s privilege and in the U.S. after Bayh-Dole Act We find very strong negative effects of reform Is Norwegian experience representative? Would other countries (incl. U.S.) see start-ups and patenting by university researchers double were researchers given 100% rights? c.f., Lissoni 2008, Lach and Schankerman 2008, Czarnitski et al. 2015, Astebro et al. 2015 Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Discussion #2: Tax and entrepreneurship Literature (e.g., Hubbard & Gentry 2000, Bruce & Gurley 2005) focuses on self-employed and sole proprietors, who may not play important roles in creating new ideas and driving growth We find very large effects of reform – does it mean that change in tax code would have a similar effect for all budding entrepreneurs? Current reform involves both increase in effective tax rate and transfer of control rights. Control rights could play a role if - Different preferences (uni prefers profitability, prof survival) - University holds up professor Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Summary Natural experiment: End of “professor’s privilege” Find ~50% decline in quantity of (1) new venture formation and (2) patenting. Quality measures decline as well. Application to university commercialization policy; also, rent-sharing in innovation and taxes/entrepreneurship. Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Thank You Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along.

Individual Regressions: All Workers Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. Individual-level controls (sex, marital status, lagged income and wealth, education dummies, age FE, individual FE) turn out to make little difference

Individual Regressions: Similar Workers Table 4 Startups, Individual Level, Similar Workers Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. Large effects also appear when restricting to relatively similar workers for control sample

Aggregate Regressions Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. Patent rate per university researcher drops ~50% in post-period compared to non-university inventors.

Individual Regressions: All Inventors Ask them why countries are rich and poor. List reasons on board and then come back to them as we go along. University inventors become like “normal” inventors in terms of patenting rate, conditional on patenting at least once.