Inventor moral hazard in university licensing: The role of contracts
AbstractAbstract We examine commonly observed forms of payment, such as milestones, royalties, or consulting contracts as ways of engaging inventors in the development of licensed inventions. Our theoretical model shows that when milestones are feasible, royalties are not optimal unless the licensing firm is risk averse. The model also predicts the use of consulting contracts which improve the firm's ability to monitor inventor effort. Because these contracts increase the firm's expected profits, the upfront fee that the university can charge is higher than otherwise. These results therefore support the commonly observed university policy of allowing faculty to consult with licensing firms outside of their university contracts. They also support firm policies of including milestones. An empirical analysis based on a survey of 112 businesses that license-in university inventions supports the complementarity of milestones and consulting suggested by the theory.
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Bibliographic InfoArticle provided by Elsevier in its journal Research Policy.
Volume (Year): 40 (2011)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/respol
University licensing Milestone payments Consulting Bayh-Dole act;
Other versions of this item:
- Emmanuel Dechenaux & Jerry Thursby & Marie C. Thursby, 2008. "Inventor Moral Hazard in University Licensing: The Role of Contracts," NBER Working Papers 14226, National Bureau of Economic Research, Inc.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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