CONTRACTING FOR AN INNOVATION UNDER BILATERAL ASYMMETRIC INFORMATION -super-
We analyze licensing contracts between informed innovators and developers exerting profit-increasing effort. Those contracts must simultaneously induce innovators to convey information on the value of their ideas, while inducing developers to exert effort and protecting the innovators' intellectual property rights. We show that the best innovators signal themselves by taking more royalties even if it reduces the developers' share of returns and their incentives. Moreover, royalties are more likely to be used when property rights are easy to enforce and pre-contractual evidence on innovation quality is hard to produce. Copyright 2010 The Authors. Journal compilation 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.
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Volume (Year): 58 (2010)
Issue (Month): 2 (06)
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- Bernhard Ganglmair & Luke M. Froeb & Gregory J. Werden, 2012. "Patent Hold-Up and Antitrust: How A Well-Intentioned Rule Could Retard Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 249-273, 06.
- Andrew F. Daughety & Jennifer F. Reinganum, 2013. "Search, bargaining, and signalling in the market for legal services," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 82-103, 03.
- Simona Fabrizi & Steffen Lippert & Pehr-Johan Norbäck & Lars Persson, 2013. "Venture Capitalists and the Patenting of Innovations," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 623-659, 09.
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