Essays on Innovation, Institutions and Gender

Innovations may be under-supplied. Market failures such as insecure property rights, institutional inequality, or unequal access to knowledge may create a loss of hidden talents in the economy. If the economic or social conditions provide inadequate private rewards over innovative activities, a suboptimal innovation rate may be inevitable. The confiscation risk of tangible or intangible property may further deteriorate the motivation of potential inventors as private returns may not meet the investment costs and risks taken to produce innovations. In that regard, retaining the rewards of their investments through secure property rights and patenting, which pro- vides monopoly rents for the innovation for a certain period of time may encourage more innovations in the economy. However, economists have long argued whether the patenting system provides sufficient incentives to boost the innovation rate in the private market. Although monopoly rents are rewarded to the inventor through patenting, the innovation rate may still be suboptimal. The mismatch between private incentives and social benefits leads to a suboptimal level of innovation. Entrepreneurs or inventors may not internalize the externalities created by innovations in the economy. Therefore, economists argue that a better-performing economic system might motivate a higher innovation rate and encourage new entrants to the market. Moreover, a more inclusive economic system, where disadvantaged groups such as women and minorities are encouraged, may lead to higher innovative activity and uncover the “lost or hidden Einsteins or Marie Curies” in society. This dissertation is composed of two chapters that examine the role of private incentives through stronger property rights on innovations and the role of a public policy related to knowledge diffusion on innovations, respectively. The first chapter, titled “The Rise of Women Inventors: Evidence from the 19th Century”, investigates how economic incentives shaped innovations as a result of a change in the institutional legal structure regarding women’s economic rights in the 19th century in the United States. More specifically, I study how innovations were affected when women were granted equal prop- erty rights by adopting the Married Women’s Property Rights Acts. The adoption of these property acts allowed women to (i) own and control property, (ii) keep their earnings from their labor, and (iii) run their businesses independently. These laws eliminated the asymmetric distribution of legal rights between men and women. In economic terms, these laws increased the private returns or incentives over engaging in entrepreneurial activity and decreased the institutional frictions to enter the market. The key finding of the first chapter is that when women were granted stronger property rights, patenting activity went up by 35%. In other words, women in states that passed these laws showed a higher patenting activity afterward than women in states that did not or have not passed these laws yet. Interestingly, I also find that the effect is realized in the long run, which numerically corresponds to 15 to 20 years. This finding is not only statis- tically significant but also economically meaningful because innovations are not overnight activities; they take time and effort. Nevertheless, to better understand why the change is realized in the long run, I study several mecha- nisms such as human capital accumulation and labor force participation rate. I find that these property rights encouraged women to invest in their human capital significantly, which may be an essential mechanism for increasing innovations in the long run. In contrast, I do not find a significant shift in the labor force participation rate in response to these rights. Overall, this chapter shows that eliminating institutional inequality or insecure property rights contributes to higher private incentives, which leads to a higher level of innovative activities. Hence, providing an even playing field for individuals may create more opportunities to uncover or discover the “lost or hidden Einsteins or Marie Curies” in the economy. Although private incentives and property rights are a significant part of the innovation process, internalizing the social benefits of innovations and encouraging more innovations in an economy could be achieved through public policies. Therefore, in the second chapter, titled “Property Rights and Knowledge Diffusion: Evidence from the Married Women’s Property Acts and The First Patent Libraries”, I study the relationship between a public policy related to knowledge diffusion and innovation. In more detail, I investigate how public patent disclosure shaped subsequent innovations for female and male inventors in the 19th century in the United States. Public patent disclosure through the provision of existing patent copies to public libraries in various cities could: (i) raise awareness of the existing innovations or inventions to avoid any infringement, (ii) provide equal and easy access to technical knowledge by eliminating transportation costs or difficulties to Washington, DC, and (iii) may increase the probability of benefiting from the existing technical knowledge to for subsequent innovations. Both men and women who may be deterred due to additional difficulties or implicit costs of the patenting process may benefit from distributing patent copies to public libraries. On the other hand, patent disclosure can disincentivize innovators if they are more willing to keep the “secrets” to themselves. The key finding of the second chapter is that male innovators respond positively and significantly to the provision of public patent libraries. In contrast, the response from women innovators is noisy and indistinguishable from zero. As discussed in the first chapter, enhanced property rights created dynamism in innovations patented by women. Therefore, I specifically inves- tigate the states that adopted women’s property rights for women inventors before introducing the patent libraries. I find a slightly positive response in such states; however, the effect is sensitive to including various fixed effects. Additionally, to understand the differential response between male and fe- male inventors, I analyze the characteristics of innovations in the 19th century because there might be heterogeneous needs and responses across fields to benefit from patent disclosure. In other words, scientific fields that move for- ward cumulatively, such as biology, chemistry, or physics, may benefit from patent disclosure better. Based on the technology class information in the CUSP data, I show that women’s patents are concentrated in specific fields such as human necessities, hardware or household appliances, and textiles. Therefore, patent disclosure may not have created an additional dynamism in innovations for women as the concentrated fields may have lower needs for previous patent knowledge. This chapter shows that knowledge diffusion may help achieve a higher innovation rate; however, public policies may be designed based on the heterogeneous needs and responses within industries or disadvantaged groups. These chapters show that private incentives through stronger property rights created a remarkable innovation dynamism regard- ing women inventors, whereas patent disclosure created a minimal effect on their innovations.