Econometric evidence on the depreciation of innovations

Abstract

This paper presents estimates of the depreciation rate of innovations using survey data on revenues associated with Australian patents. Its novelty is twofold. First, it relies on direct observation of the revenue streams of inventions. This is in sharp contrast with previous studies, which all rely on models based on indirect observation and require strong identifying assumptions. Second, it presents estimates of the effect of patent protection on the depreciation rate. Results suggest that the depreciation rate is in 2–7% range. Inventions for which a patent is granted are associated with a 1–2 percentage point reduction in the depreciation rate.