Econometric Evidence on the R&D Depreciation Rate

This paper presents estimates of the R&D depreciation rate using survey data on Australian inventions. 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 yearly depreciation rate varies in a range of 1 to 5 per cent, although the depreciation rate is stronger in the first two years of inventions averaging 8–9 per cent. Patent protection slows down the erosion of profits by about 1–2 percentage points.