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Efficient Compensation for Employees’ Inventions

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  • Roland Kirstein

    (University of Saarland)

  • Birgit Will

    (University of Saarland)

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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Bibliographic Info

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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  1. Lanjouw, Jean O & Pakes, Ariel & Putnam, Jonathan, 1998. "How to Count Patents and Value Intellectual Property: The Uses of Patent Renewal and Application Data," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 405-32, December.
  2. Nancy Gallini and Suzanne Scotchmer., 2001. "Intellectual Property: When Is It the Best Incentive System?," Economics Working Papers E01-303, University of California at Berkeley.
  3. Rebecca S. Eisenberg, 2004. "Reexamining Drug Regulation from the Perspective of Innovation Policy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(1), pages 126-, March.
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  8. Crampes, Claude & Langinier, Corinne, 2002. "Litigation and Settlement in Patent Infringement Cases," Staff General Research Papers 5231, Iowa State University, Department of Economics.
  9. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring.
  10. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
  11. Inderst, Roman, 2002. "Contract design and bargaining power," Economics Letters, Elsevier, vol. 74(2), pages 171-176, January.
  12. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  13. Eric Rasmusen, 1987. "Moral Hazard in Risk-Averse Teams," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 428-435, Autumn.
  14. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
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