One way for innovating firms to mitigate rationing is to use their intangible assets as collateral. In particular, pledging patents as collateral may mitigate credit rationing and scale-up investment in innovation. The increasing scale and impact of these issues on market efficiency should increase our awareness regarding imperfect competition, financing of new ventures and firms’ strategic conduct. The importance of securing credit for investment in research and development (R&D) and augmenting the return appropriation of firms increases in the case of knowledge-based economies, since innovation is essential for these markets.
The contribution of this research plan is to test empirically the propositions of the theoretical modeling in order to infer policy recommendations towards a more economically efficient outcome. Considering the theoretical literature, which suggests that rationing behavior weakens in the presence of a collateral, it is interesting to look at patent-backed as a contracting mechanism to mitigate credit rationing and potentially prevent an under-investment problem.