Econometric Models for Count Data with an Application to the Patents-R&D Relationship

This paper focuses on developing and adapting statistical models of counts (non-negative integers) in the context of panel data and using them to analyze the relationship between patents and RD persistent individual (fixed or random) effects, and noise or randomness in the Poisson probability function. We apply our models to a data set previously analyzed by Pakes and Griliches using observations on 128 firms for seven years, 1968-74. Our statistical results indicate clearly that to rationalize the data, we need both a disturbance in the conditional within dimension and a different one, with a different variance, in the marginal (between) dimension. Adding firm specific variables, log book value and a scientific industry dummy, removes most of the positive correlation between the individual firm propensity to patent and its R&D intensity. The other new finding is that there is an interactive negative trend in the patents - R&D relationship, that is, firms are getting less patents from their more recent R&D investments, implying a decline in the effectiveness or productivity of R&D.