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Inventor moral hazard in university licensing: The role of contracts

  • Dechenaux, Emmanuel
  • Thursby, Jerry
  • Thursby, Marie

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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Article provided by Elsevier in its journal Research Policy.

Volume (Year): 40 (2011)
Issue (Month): 1 (February)
Pages: 94-104

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Handle: RePEc:eee:respol:v:40:y:2011:i:1:p:94-104
Contact details of provider: Web page: http://www.elsevier.com/locate/respol

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  18. InÉs Macho-Stadler & David Pérez-Castrillo & Reinhilde Veugelers, 2008. "Designing Contracts for University Spin-offs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 185-218, 03.
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  24. 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.
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