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Empirical work on the causes and effects of inventive activity has had difficulty in finding measures that can indicate when and where changes in either inventive inputs or inventive output have occurred. The recent computerization of the U. S. Patent Office's data base may prove helpful in this context, but there is the problem that a priori we do not know the relationships between patent applications and economically meaningful measures of these inputs and outputs. To help solve this problem, this paper investigates the dynamic relationships among the number of successful patent applications of firms, a measure of the firm's investment in inventive activity (its R & D expenditures), an indicator of its inventive output (the stock market value of the firm).
Ariel Pakes (Mon,) studied this question.