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Inventor Moral Hazard in University Licensing: The Role of Contracts

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  • Emmanuel Dechenaux
  • Jerry Thursby
  • Marie C. Thursby

Abstract

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 Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14226.

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Date of creation: Aug 2008
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Publication status: published as Dechenaux, Emmanuel & Thursby, Jerry & Thursby, Marie, 2011. "Inventor moral hazard in university licensing: The role of contracts," Research Policy, Elsevier, vol. 40(1), pages 94-104, February.
Handle: RePEc:nbr:nberwo:14226

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  1. Saul Lach & Mark Schankerman, 2008. "Incentives and invention in universities," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 403-433.
  2. Partha, Dasgupta & David, Paul A., 1994. "Toward a new economics of science," Research Policy, Elsevier, vol. 23(5), pages 487-521, September.
  3. Perkmann, Markus & Walsh, Kathryn, 2008. "Engaging the scholar: Three types of academic consulting and their impact on universities and industry," Research Policy, Elsevier, vol. 37(10), pages 1884-1891, December.
  4. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
  5. Jerry G. Thursby & Marie C. Thursby, 2007. "University licensing," Oxford Review of Economic Policy, Oxford University Press, vol. 23(4), pages 620-639, Winter.
  6. Jerry G. Thursby & Marie C. Thursby, 2003. "Are Faculty Critical? Their Role in University-Industry Licensing," NBER Working Papers 9991, National Bureau of Economic Research, Inc.
  7. Caves, Richard E & Crookell, Harold & Killing, J Peter, 1983. "The Imperfect Market for Technology Licenses," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 45(3), pages 249-67, August.
  8. Choi, Jay Pil, 1996. "Technology Transfer with Moral Hazard," Economics Series 22, Institute for Advanced Studies.
  9. Macho-Stadler Inés & Pérez-Castrillo David & Veugelers Reinhilde, 2007. "Designing Contracts for University Spin-offs," Working Papers 201071, Fundacion BBVA / BBVA Foundation.
  10. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  11. Marie C. Thursby & Jerry Thursby & Swasti Gupta-Mukherjee, 2007. "Are There Real Effects of Licensing on Academic Research? A life cycle view," NBER Chapters, in: Academic Science and Entrepreneurship: Dual Engines of Growth National Bureau of Economic Research, Inc.
  12. Thursby, Jerry G & Jensen, Richard & Thursby, Marie C, 2001. " Objectives, Characteristics and Outcomes of University Licensing: A Survey of Major U.S. Universities," The Journal of Technology Transfer, Springer, vol. 26(1-2), pages 59-72, January.
  13. Macho-Stadler Inés & Pérez-Castrillo David & Veugelers Reinhilde, 2005. "Licensing of University Inventions: The Role of a Technology Transfer Office," Working Papers 201022, Fundacion BBVA / BBVA Foundation.
  14. Jerry G. Thursby & Marie C. Thursby, 2000. "Who is Selling the Ivory Tower? Sources of Growth in University Licensing," NBER Working Papers 7718, National Bureau of Economic Research, Inc.
  15. Jeannette Colyvas & Michael Crow & Annetine Gelijns & Roberto Mazzoleni & Richard R. Nelson & Nathan Rosenberg & Bhaven N. Sampat, 2002. "How Do University Inventions Get Into Practice?," Management Science, INFORMS, vol. 48(1), pages 61-72, January.
  16. Macho, I. & Martinez-Giralt, X. & Perez-Castrillo, D., 1993. "The Role of Information in Licensing Contract Design," UFAE and IAE Working Papers 216.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  17. Marie Thursby & Richard Jensen, 2001. "Proofs and Prototypes for Sale: The Licensing of University Inventions," American Economic Review, American Economic Association, vol. 91(1), pages 240-259, March.
  18. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  19. Richard Jensen & Jerry Thursby & Marie C. Thursby, 2010. "University-Industry Spillovers, Government Funding, and Industrial Consulting," NBER Working Papers 15732, National Bureau of Economic Research, Inc.
  20. Keith E. Maskus, 2000. "Intellectual Property Rights in the Global Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 99.
  21. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
  22. Ashish Arora & Andrea Fosfuri & Alfonso Gambardella, 2004. "Markets for Technology: The Economics of Innovation and Corporate Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511819, December.
  23. John Beath & Robert Owen & Joanna Poyago-Theotoky & David Ulph, 2000. "Optimal Incentives for Income-Generation within Universities," Discussion Paper Series, Department of Economics 200007, Department of Economics, University of St. Andrews.
  24. Jerry Thursby & Anne Fuller & Marie Thursby, 2007. "US Faculty Patenting: Inside and Outside the University," NBER Working Papers 13256, National Bureau of Economic Research, Inc.
  25. Levin, Sharon G & Stephan, Paula E, 1991. "Research Productivity over the Life Cycle: Evidence for Academic Scientists," American Economic Review, American Economic Association, vol. 81(1), pages 114-32, March.
  26. Marie Thursby & Jerry Thursby & Emmanuel Dechenaux, 2005. "Shirking, Sharing Risk, and Shelving: The Role of University License Contracts," NBER Working Papers 11128, National Bureau of Economic Research, Inc.
  27. Jean-Jacques Laffont, 1989. "The Economics of Uncertainty and Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121360, December.
  28. Di Gregorio, Dante & Shane, Scott, 2003. "Why do some universities generate more start-ups than others?," Research Policy, Elsevier, vol. 32(2), pages 209-227, February.
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Cited by:
  1. Crama, Pascale & De Reyck, Bert & Degraeve, Zeger, 2013. "Step by step. The benefits of stage-based R&D licensing contracts," European Journal of Operational Research, Elsevier, vol. 224(3), pages 572-582.
  2. Козырев А.Н. & Неволин И. В., 2013. "Применение Алгоритма Решения Задачи Об Оптимальном Распределении Ресурсов К Проблеме Назначения Цены За Ис�," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 49(3), pages 57-68, июль.
  3. Erika Farnstrand Damsgaard & Marie C. Thursby, 2012. "University Entrepreneurship and Professor Privilege," NBER Working Papers 17980, National Bureau of Economic Research, Inc.
  4. Muscio, Alessandro & Quaglione, Davide & Vallanti, Giovanna, 2013. "Does government funding complement or substitute private research funding to universities?," Research Policy, Elsevier, vol. 42(1), pages 63-75.

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