European Center for Advanced Research in Economics and Statistics

Title :  Asymmetric Intellectual Property Rights (IPR) and Follow-on Innovation : Evidence from Drug Repurposing.

Abstract :  Does longer market exclusivity promote follow-oninnovation? I show that an upstream patent acts as both a gate and a shield.The gate requires follow-on innovators to obtain a license; the shield protectslicensed innovations from imitation when their own rights are weak. Drugrepurposing fits this asymmetry: a molecule’s patent covers every use, whilenew-use rights are narrow and difficult to enforce. The model predicts thatlonger upstream protection encourages follow-on development when the shield outweighslicensing delays. To test it, I construct data of new uses on new molecularentities approved by the FDA between 1985 and 2024 and instrument effectiveexclusivity with FDA review time. An additional year's exclusivity of the drugraises its post-approval new uses by about 34 percent. The marginal effectdeclines and is indistinguishable from zero beyond roughly 15 years.Originators and entrants both respond positively, whereas the gate-only modelpredicts no originator response and a non-positive entrant response. Thesefindings support the shield mechanism and point to a market failure in theprotection of new uses.

Title : Not-so-Cleansing Recessions.


Abstract : Recessions are periods in which the least productive firms in theeconomy exit, and as the economy recovers, they are replaced by more productiveentrants. These cleansing effects improve the average firm productivity. At thesame time, recessions induce a loss of varieties. In an economy with HomotheticSingle Aggregator technology, we show that their long-run welfare effects tradeoff these two forces. This trade-off is governed by love-of-variety and theelasticity of substitution in aggregate production. If industry output isaggregated using the standard CES aggregator, recessions do not improvelong-run GDP or welfare. If the economy features more love-of-variety than CES,the social planner optimally subsidizes economic activity both in steady stateand even more so in recessions to avoid firm exit. We use the model andquasi-exogenous variation in demand to estimate love-of-variety. We find it tobe significantly higher than implied by CES aggregation, suggesting that eventhe long-run effects of recessions are negative. Finally, we quantitativelycharacterize the optimal policy response both along the transition and in thesteady state.

Title : The EU exposure to critical raw materials through supplychains.

Title : "Stable contracts under renegotiation"

Abstract : Westudy a principal contracting with a privately informed agent, where anycontract is subject to renegotiation. Rather than specifying a specificrenegotiation game, we propose conditions that the set of terminal outcomes ofrenegotiation must satisfy. Our central concept is a stable set ofcontract-belief pairs defined by external stability (outcomes not in the stableset can be improved to outcomes in the stable set) and internal stability (nostrict mutual improvements exist within the stable set). Applied to mechanismdesign, our framework characterizes the principal’s loss from lackingcommitment. In a nonlinear contracting environment, we show that poolingcontracts that satisfy a no-distortion-at-the bottom property are optimal.

Title : "Who benefits from industrial policy? Evidence fromfirm investment grants"


Abstract : This paper studies the distributionalconsequences of firm investment grants. We exploit Portugal’s PT2020 program, amajor component of the European Union’s Cohesion Policy, which allocatesinvestment support through competitive calls for applications. Usingadministrative data covering the universe of applicants, we compare fundedfirms with unsuccessful applicants within the same call and complement theanalysis with local comparisons around the effective funding cutoff. We findthat investment grants generate substantial increases in capital accumulation,employment, value added, and profitability. Despite

these large firm-level gains, we find littleevidence of changes in workforce composition. Instead, the gains generated byinvestment support are distributed unevenly. Profitability increasessubstantially, while wage gains are concentrated among incumbent workersemployed in high-skill occupations. By contrast, workers employed innon-high-skill occupations experience little wage growth. Finally, largergrants generate additional increases in firm scale and profitability but nocorresponding wage gains for incumbent workers. This contrast indicates thatthe distribution of gains within firms does not scale proportionally with themagnitude of investment support. Overall, our findings indicate that industrialpolicy generates substantial economic gains, but that these gains accruedisproportionately to firm owners and skilled workers.

Speaker: Stefano Falcone (Collegio Carlo Alberto)

Title : Inequality and Conflict in Catalonia

With Daniel Carrera Abad, Andrea Pop Catalisan, and Gianluca Russo.

Abstract:
We study how historical inequality shapes long-run political preferences. Our setting is Catalonia, where Christian counts expanded southward into Al-Andalus between the ninth and eleventh centuries at heterogeneous speeds, creating a frontier whose location was driven by idiosyncratic military events. Using a spatial regression discontinuity design comparing municipalities on either side of this frontier, we find that areas conquered more rapidly display persistently stronger support for the radical left. Southern municipalities show higher vote shares for radical-left parties in all democratic elections since 1977, a greater historical presence of anarcho-syndicalist and communist organizations, and more frequent protest activity. These patterns extend back to the Second Republic and the Spanish Civil War, including differences in militias, collectivization, and repression. We trace these effects to the resettlement process in fast-conquered territories, which produced concentrated landholding, weaker state capacity, and a large class of landless peasants. Our findings show how inequality under weak political authority can generate lasting radical political identities.

Seminar: 14:00–15:15 (75 minutes, including Q&A).