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How important is access to patent documents for subsequent innovation? We examine the expansion of the USPTO Patent Library system after 1975. Patent libraries provided access to patents before the Internet. We find that after patent library opening, local patenting increases by 8–20 percent relative to similar regions. Additional analyses suggest that disclosure of technical information drives this effect: inventors increasingly take up ideas from outside their region, and the effect is strongest in technologies where patents are more informative. We thus provide evidence that disclosure plays an important role in cumulative innovation. (JEL D83, K11, O31, O34, R11) 

I analyze project continuation decisions where firms may resolve uncertainty through news about competitors’ research and development (R&D) failures, as well as through their own results. I examine the tradeoffs and interactions between product-market competition and technological learning from parallel R&D projects. Leveraging the biopharmaceutical industry’s unique characteristics to overcome barriers to measuring project-level responses, I use a difference-in-differences strategy to evaluate how competitor exit news alters a firm’s own project discontinuation decisions. The findings reveal that technological learning dominates competition effects. Firms are most sensitive to competitor failure news from within the same market and same technology area—more than doubling their propensity to terminate drug development projects in the wake of this type of information. Finally, I explore how levels of competition, uncertainty, and opportunities to learn moderate the response to competitor failure news. This paper was accepted by Joshua Gans, business strategy. 

Abstract We provide evidence that risk aversion leads pharmaceutical firms to underinvest in radical innovation. We introduce a new measure of drug novelty based on chemical similarity and show that firms face a risk-reward trade-off: novel drug candidates are less likely to obtain FDA approval but are based on more valuable patents. Consistent with a simple model of costly external finance, we show that a positive shock to firms’ net worth leads firms to develop more novel drugs. This suggests that even large firms may behave as though they are risk averse, reducing their willingness to investment in potentially valuable radical innovation.