(job market paper)

Over the last 40 years, corporate R\&D has globalized, with US firms increasingly relying on overseas inventors. Little is known about how invention value differs between domestic and international locations. I examine how rising domestic costs affect invention value, particularly given restrictive US immigration policies. Prior studies suggest offshoring lower-value inventions as high penalties from coordination costs and knowledge leakage are justified only by lower overseas costs of R\&D talent. If only lower-value inventions were offshored, a rise in domestic costs should increase overseas value. Contrary to expectations, this paper finds that higher domestic costs reduce the value of overseas inventions because firms offshore less suitable inventions with high offshoring penalties. Analysis of US public firms shows centralized firms offshore fewer inventions but shift more overseas when costs rise. Larger firms are less responsive to cost increases, but decentralized and larger firms extract more value from overseas R\&D. When domestic costs of inventing rise, firms increase their inventive activity in emerging market countries and countries with weaker IPR regimes. Moreover, the value of inventions in countries with weak IPR declines under rising domestic costs. 

with Ashish Arora, Wesley Cohen and Honggi Lee

Do large firms produce more valuable inventions, and if so, why? After confirming that large firms indeed produce more valuable inventions, we consider two possible sources: a superior ability to invent, or a superior ability to extract value from their inventions. We develop a simple model that discriminates between the two explanations. Using a sample of 2,786 public corporations, and measures of both patent quality and patent value, we find that, while average invention value rises with size, average invention quality declines, suggesting, per our model, that the large firm advantage is not due to superior inventive capability, but due to the superior ability to extract value. We provide evidence suggesting that this superior ability to extract value is due to the greater commercialization capabilities of larger firms.