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Innovation contracts with leakage through licensing

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    Abstract

    In this paper a Developer contracts with a Researcher for the production of a non-drastic innovation. Since effort is non-contractible, the Developer offers an incentive contract dependent on the observed magnitude of the innovation. It is shown that the distribution of intellectual property rights (IPR) ownership does not affect the level of effort exerted for innovations where the Developer would choose to license the innovation to its competitors. This is because the possibility of leakage of the innovation through licensing subsidies the Developer's payment when IPR is delegated to the Researcher, while at the same time eroding its profit.

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    File URL: http://eprints.utas.edu.au/10282/1/DP2010_11_Evans_Innovation_Oct_2010.pdf
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    Bibliographic Info

    Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 10282.

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    Length: 33 pages
    Date of creation: 05 Oct 2010
    Date of revision: 05 Oct 2010
    Publication status: Published by the University of Tasmania. Discussion paper 2010-11
    Handle: RePEc:tas:wpaper:10282

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    Related research

    Keywords: Innovation; Intellectual Property Rights; Licensing;

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    1. James J. Anton & Dennis A. Yao, 2004. "Little Patents and Big Secrets: Managing Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 1-22, Spring.
    2. Désiré Vencatachellum & Bruno Versaevel, 2006. "R&D Delegation in a Duopoly with Spillovers," Post-Print halshs-00142520, HAL.
    3. Josh Lerner & Julie Wulf, 2007. "Innovation and Incentives: Evidence from Corporate R&D," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 634-644, November.
    4. Anton, James J & Yao, Dennis A, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 513-31, July.
    5. Martimort, David & Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2009. "Contracting for an Innovation under Bilateral Asymmetric Information," IDEI Working Papers 448, Institut d'Économie Industrielle (IDEI), Toulouse.
    6. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
    7. Sudipto Bhattacharya & Sergei Guriev, 2005. "Patents vs trade secrets: knowledge licensing and spillover," LSE Research Online Documents on Economics 444, London School of Economics and Political Science, LSE Library.
    8. Rubén Hernández-Murillo & Gerard Llobet, 2004. "Patent licensing revisited: heterogeneous firms and product differentiation," Working Papers 2002-031, Federal Reserve Bank of St. Louis.
    9. Bhattacharya, Sudipto & Ritter, Jay R, 1983. "Innovation and Communication: Signalling with Partial Disclosure," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 331-46, April.
    10. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
    11. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    12. Bergmann, Rouven & Friedl, Gunther, 2008. "Controlling innovative projects with moral hazard and asymmetric information," Research Policy, Elsevier, vol. 37(9), pages 1504-1514, October.
    13. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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