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Efficient Compensation for Employees’ Inventions

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Author Info
Roland Kirstein (University of Saarland)
Birgit Will (University of Saarland)

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Abstract

We analyze the legal reform concerning employees' inventions in Germany. Using a simple principal-agent model, we derive a unique efficient payment scheme: a bonus which is contingent on the project value. We demonstrate that the old German law creates inefficient incentives. However, the new law concerning university employees and the pending reform proposal concerning other employees also fail to implement first-best incentives. With suboptimal incentives to spend effort on inventions, the government's goal, an increase in the number of patents, is likely to be missed.

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Paper provided by Berkeley Electronic Press in its series German Working Papers in Law and Economics with number 2004-1-1080.

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Handle: RePEc:bep:dewple:2004-1-1080

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Keywords: Moral hazard; hold-up; efficient fixed wage;

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Find related papers by JEL classification:
K - Law and Economics
J - Labor and Demographic Economics
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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