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Monday, March 11, 2019 at 11:40am to 1:10pm
Ives Hall, 115
B07 Tower Rd, Ithaca, NY 14853, USA
John Van Reenen, MIT
Professor Van Reenen will present on the following papers:
Do Tax Cuts Produce More Einsteins? The Impacts of Financial Incentives vs. Exposure to Innovation on the Supply of Inventors
(Alexander M. Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, John Van Reenen)
Abstract: Many countries provide financial incentives to spur innovation, ranging from tax incentives to research and development grants. In this paper, we study how such financial incentives affect individuals' decisions to pursue careers in innovation. We first present empirical evidence on inventors' career trajectories and income distributions using de-identified data on 1.2 million inventors from patent records linked to tax records in the U.S. We find that the private returns to innovation are extremely skewed – with the top 1% of inventors collecting more than 22% of total inventors' income – and are highly correlated with their social impact, as measured by citations. Inventors tend to have their most impactful innovations around age 40 and their incomes rise rapidly just before they have high-impact patents. We then build a stylized model of inventor career choice that matches these facts as well as recent evidence that childhood exposure to innovation plays a critical role in determining whether individuals become inventors. The model predicts that financial incentives, such as top income tax reductions, have limited potential to increase aggregate innovation because they only affect individuals who are exposed to innovation and have no impact on the decisions of star inventors, who matter most for aggregate innovation. Importantly, these results hold regardless of whether the private returns to innovation are known at the time of career choice. In contrast, increasing exposure to innovation (e.g., through mentorship programs) could have substantial impacts on innovation by drawing individuals who produce high-impact inventions into the innovation pipeline. Although we do not present direct evidence supporting these model-based predictions, our results call for a more careful assessment of the impacts of financial incentives and a greater focus on alternative policies to increase the supply of inventors.
Who Becomes an Inventor in America? The Importance of Exposure to Innovation*
(Alex Bell, Raj Chetty, Xavier Jaravel, Neviana Petkova, John Van Reenen)
Abstract: We characterize the factors that determine who becomes an inventor in the United States, focusing on the role of inventive ability ( "nature" ) vs. environment ( "nurture" ). Using de-identified data on 1.2 million inventors from patent records linked to tax records, we firrst show that children's chances of becoming inventors vary sharply with characteristics at birth, such as their race, gender, and parents' socioeconomic class. For example, children from high-income (top 1%) families are ten times as likely to become inventors as those from below-median income families. These gaps persist even among children with similar math test scores in early childhood - which are highly predictive of innovation rates - suggesting that the gaps may be driven by differences in environment rather than abilities to innovate. We then directly establish the importance of environment by showing that exposure to innovation during childhood has signicant causal effects on children's propensities to invent. Children whose families move to a high-innovation area when they are young are more likely to become inventors. These exposure effects are technology-class and gender specific. Children who grow up in a neighborhood or family with a high innovation rate in a specific technology class are more likely to patent in exactly the same class. Girls are more likely to invent in a particular class if they grow up in an area with more women (but not men) who invent in that class. These gender- and technology class-specific exposure effects are more likely to be driven by narrow mechanisms such as role model or network effects than factors that only aect general human capital accumulation, such as the quality of schools. Consistent with the importance of exposure effects in career selection, women and disadvantaged youth are as under-represented among high-impact inventors as they are among inventors as a whole. These findings suggest that there are many "lost Einsteins" - individuals who would have had highly impactful inventions had they been exposed to innovation in childhood - especially among women, minorities, and children from low-income families.