Essays on Science and Innovation

The commercialization of scientific discoveries into innovation has traditionally been the purview of large corporations operating central R&D laboratories through much of the past century. The past four decades have seen this model being gradually supplanted by a more decentralized system of universities and VC-backed startups that have displaced large corporations as the conductors of scientific research. This dissertation tries to understand how firms create and exploit scientific knowledge in this changing structure of American innovation. The first study examines how scientific knowledge can expand markets for technology and thereby encourage the entry of new science-based firms into invention. The argument is tested in the context of the U.S. patent market and finds that patents citing scientific articles tend to be traded more often, even after controlling for various proxies of patent quality. The second study explores why some American firms started investing in scientific research in the early twentieth century. The chapter relies on a newly assembled panel dataset of innovating firms consisting of their investments in science, patenting, financials and ownership between 1926 and 1940. The empirical patterns reveal that the beginnings of corporate research in America were driven by companies at the technological frontier attempting to take advantage of opportunities for innovation made possible by scientific advances. This investment was especially pronounced for firms based in scientific fields that were underdeveloped in the United States. The final study asks why startups are more likely to bring scientific advances to market. The existing literature has explained the higher innovative propensity of some startups by their superior scientific capabilities. However, it is also possible that the apparent innovativeness of startups may be a result of firm choice, rather than inherent capability gaps with respect to incumbents. Startups may choose novel products that are riskier but offer higher payoffs because they pay a higher entry cost in the form of investments in new factories, sales and distribution channels. I test this entry cost mechanism in the context of the American laser industry which responded to an exogenous influx of Soviet laser science following the end of the Cold War.