The economics of corporate espionage

Weprovide systematic evidence on the economic damages from espionage to US firms and industries. Compiling a comprehensive dataset of publicly disclosed espionage incidents from 1995-2024, we establish that espionage has substantial negative effects on targeted f irms. In an event-study design, revenues and R&D expenditures at targeted firms decline by roughly 40% within five years, with effects persisting for up to a decade. These effects do not appear for firms unsuccessfully targeted for espionage, supporting a causal interpretation. These firm-level damages translate into measurable aggregate effects on US industry: exports in targeted sectors decline by 60% over a decade. Given these substantial damages, we investigate whether firms restrict knowledge sharing in response to espionage. Across a wide range of outcomes, we find no evidence of such restrictions. Firms do not reduce their patenting with foreign inventors, and do not discriminate in employment based on perceived espionage risk. Overall, espionage has clear economic harms to targeted firms and US industry, but firms are puzzlingly unresponsive in how they manage innovation.

That is from a new paper by Andrew Kao and Karthik Tadepalli.  Via Kris Gulati.