Spillover Effects of Intellectual Property Protection in the Interwar Aircraft Industry

Abstract

Abstract Can strengthening intellectual property (IP) protection for producers of one good affect innovation in other related goods? To answer this question, we exploit a unique policy experiment in the interwar military aircraft industry. Airframe designs had little IP protection before 1926, but changes passed by Congress in 1926 provided airframe manufacturers with enhanced property rights over new designs. We show that granting property rights to airframe producers increased innovation in airframes, but slowed innovation in aero-engines, a complementary good where there was no change in the availability of IP protection. We propose and test a simple theory that explains these patterns.