Incentive Pay or Windfalls: Remuneration for Employee Inventions in Japan

This paper summarizes historical developments in Japan’s legal treatment of firms ’ invention remuneration policies and examines the impact of such policies on R&D performance using original data from surveys including the 2005 IIP Invention Remuneration Survey, the 2007 RIETI Inventor Survey and its 2008 follow-up survey. Tracking the linkages between remuneration policy and R&D performance is complicated by Japanese firms ’ reluctance to reveal the details of their policies to their employees before the 2004 amendment of Japan’s Patent Law. By matching the data from firm-level and individual-level surveys, we find that nearly 40 % of inventors believed that their firms did not have revenue-based remuneration although their employers reported they actually had instituted such policies. We estimate the effect of revenue-based remuneration policies on R&D performance using two policy variables for the incidence of contingent remuneration policies, one of which depends on the firms ’ responses and the other on individual employees ’ survey responses. Our project-level or patent-level productivity measures include the number of patents generated from a project, inventors ’ subjective evaluation of their patents ’ economic value, and indicators of whether the patent was used commercially. After taking measures to eliminate estimation bias, such as th