Abstract

Can granting IP protection to one good affect the innovation rate in other related goods? To answer this question we exploit a unique policy experiment in the inter-war 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 the new designs they produced. We show that granting property rights to airframe producers increased innovation in airframes, but slowed down 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.