Acquisitions, Inventors' Turnover, and Innovation: Evidence from the Pharmaceutical Industry (joint with L. Cassi) - accepted at European Economic Review

Abstract: This paper examines the relationship between the post-merger decline in patenting among pharmaceutical firms, as observed in previous firm-level studies, and the following individual-level dynamics: (i) the exit of inventors from the innovation market, (ii) the departure of inventors from target firms to other research labs, and (iii) a decline in the innovative output of inventors who remain within the acquired firms. Using a large sample of target companies, we estimate that acquisitions are associated with an increase in exit rates of inventors between 7.6 and 17.5 percentage points and of their departure rates ranging from 12.2 to18.9 percentage points. We find similar results are obtained for large and small deals and that top inventors of targets are also more likely to exit or to leave when an acquisition takes place. Our results show that, for each inventor that exits the innovation market, around 2 patents are foregone, representing more than 30 percent loss of the expected output these scientists could have produced over their careers. Inventors who relocate to a different lab also generate 2 fewer patents compared to similar control scientists, representing a 30 percent decrease in their productivity too. Finally, inventors that stay at the acquired targets also experience a decrease in output of nearly one fewer patent. These results point to a significant decline in both human capital and consumer welfare, which call for a closer scrutiny of M&As. 

Related piece on ProMarket.org: Do Pharmaceutical Acquisitions Undermine Innovation by Disrupting Human Capital? 

Identification of Production Functions under Imperfect Competition: A “Fixed-Point Estimator”   (joint with J. Tong)

Abstract: This paper develops new research designs to correct various biases in firm-level production function estimation. We identify a nested three-factor CES production function, using the first-order condition for cost minimisation with respect to the intermediate input. We estimate the resulting nonlinear model using a novel “fixed-point estimator” that iterates over two derived conditional linear regressions. We provide a computationally efficient solution algorithm, along with Monte Carlo and empirical validations of the fixed-point estimator. Applying our approach to UK manufacturing data, we establish above-unitary capital–labour substitution elasticities, a finding consistent with capital deepening contributing to the decline of labour share. PDF

A previous version of this paper circulated under the name "Production Function, Market Power and Rent Sharing". 

Technology vs Information to Promote Conservation: Evidence from Water Audits (joint with E. Ansink and M. Tonin)

Abstract: We study the impact of audits on water conservation, distinguishing between the information and technological components. We observe water consumption for thousands of households in the South East of England for up to 18 months after they receive a visit of a so-called Green Doctor. We observe a decrease in water usage between 7.5 and 10 litres per day for each water-device and we find that this effect is persistent over 18 months. Devices reducing water pressure are particularly effective, while shower timers are ineffective. The information component of the water audit has a large initial impact of around 40 litres per day, but this effect gradually fades away over time, until it stabilizes to around 10 litres per day. Technology appears to be more cost-effective than information provision and this can help in the design of policy interventions.  PDF