Exploration versus exploitation in technology firms: The role of compensation structure for R&D workforce

We investigate the relationship between a firm’s compensation structure and the extent to which its innovation is more exploration versus exploitation oriented. Specifically, we assess two aspects of a firm’s compensation design—horizontal dispersion within job levels and vertical tournament incentives between job levels. A six-year panel of compensation records of 671,028 employees working at 81 U.S.-based high technology firms between 1997 and 2002 are used to construct measures that characterize a firm's pay structure, which are linked to these firms’ patents filed in the U.S. We find that firms with higher-powered tournament incentives in vertical compensation structure report higher fraction of innovation directed towards exploration. Horizontal pay dispersion, on the other hand, shows a negative relationship with the exploration in firms where R&D employees’ age variance is low. In firms where R&D employees’ age variance is high, the negative relationship between horizontal pay dispersion and exploration is muted.     

Innovation as a social bubble: The example of the Human Genome Project

In this paper we present a detailed synthesis of the development of the Human Genome Project (HGP) from the mid 1980s through 2000, in order to test our hypothesis of “social bubbles”, which claims that strong social interactions between enthusiastic supporters weave a network of reinforcing feedbacks that lead to widespread endorsement and extraordinary commitment by those involved, beyond what would be rationalized by a standard cost-benefit analysis in the presence of extraordinary uncertainties and risks. The HGP was initiated as a public project funded by government agencies, starting at a moderate pace. The progressive introduction of different actors and the development of various interests catalyzed the project, which eventually became eminent both in the public and private sectors. The competition between the public and the private sector played greatly in favor of both: the financial burden as well as the horizon of the public project were significantly reduced, the private project(s) gained from the hype of the public project, yet had to play an active and collaborative role in order to remain in the game. This is at the core of the social bubble hypothesis. To further our argument, we present quantitative analysis of the development of the biotech sector within the financial stock market. Lastly, we point to the fact that the hypes fueling the bubble during its growth have not been followed by real tangible outcomes over the short expected time horizons. Indeed, at the time of writing (May, 2011), the consensus of the scientific community is that it will take decades to exploit the fruits of the HGP.     

Liberalisation and R&D in network industries: The case of the electricity industry

Electricity sector liberalisation has coincided with a significant decline in R&D spending. This paper reviews the industrial organisation literature on R&D and innovation to explore the likely causes of the decline in R&D spending in the electricity sector. Meanwhile, R&D productivity and innovative outputs in utilities and equipment suppliers appear to have improved. However, a lasting decline in R&D expenditure can have a negative long-term effect on technological progress and innovation in the sector. We conclude that the decline in R&D could have been predicted from the literature. We also discuss the need to reorient the post-liberalisation technology policy.     

Impact of the excise tax on firm R&D and performance in the medical device industry: Evidence from the Affordable Care Act

This article examines how the excise tax affects firms’ R&D investment, performance, and market strategy in the US medical device industry. The Affordable Care Act imposed a 2.3% excise tax on medical devices beginning in January 2013, and thus this study compares the medical device firms with other high-tech firms before and after the tax incidence. Using COMPUSTAT data from 2006 to 2015, the author finds that the excise tax reduced R&D investment, sales revenue, gross margins, and earnings for medical device firms. In addition, the excise tax increased their global market sales intensity, global market diversification, and customer diversification in the US domestic market.