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Inventor moral hazard in university licensing: The role of contracts

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  • 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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  • 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:eee:respol:v:40:y:2011:i:1:p:94-104
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    Cited by:

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    2. Huňady Ján & Pisár Peter & Jošić Hrvoje & Žmuk Berislav & Bach Mirjana Pejić, 2023. "Government and Business Funding of Sources of Funds for R&D at Universities: Complements or Substitutes?," South East European Journal of Economics and Business, Sciendo, vol. 18(2), pages 97-111, December.
    3. Catherine Bobtcheff & Carole Haritchabalet, 2018. "Economic Modeling and Valorization of Biobanks," Working papers of CATT hal-02141057, HAL.
    4. Erika Färnstrand Damsgaard & Marie C. Thursby, 2013. "University entrepreneurship and professor privilege," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(1), pages 183-218, February.
    5. 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.
    6. Iorio, Roberto & Labory, Sandrine & Rentocchini, Francesco, 2017. "The importance of pro-social behaviour for the breadth and depth of knowledge transfer activities: An analysis of Italian academic scientists," Research Policy, Elsevier, vol. 46(2), pages 497-509.
    7. Öcalan-Özel, Sıla & Pénin, Julien, 2019. "Invention characteristics and the degree of exclusivity of university licenses: The case of two leading French research universities," Research Policy, Elsevier, vol. 48(6), pages 1445-1457.
    8. Thang Nguyen & Lan Nguyen & Scott Bryant & Hieu Nguyen, 2020. "What Motivates Scientists in Emerging Economies to Become Entrepreneurs? Evidence from Vietnam," Sustainability, MDPI, vol. 12(3), pages 1-18, February.
    9. Catherine Bobtcheff & Carole Haritchabalet, 2018. "Economic Modeling and Valorization of Biobanks," Post-Print hal-02441188, HAL.
    10. Ziyuan Sun & Man Wang & Weiwei Zhang & Yanli Li & Dan Wang & Feng Dong, 2019. "How Can We Improve the Transformation Success Rate of Research Results in the Pharmaceutical Industry? The Game Theoretic Model of Technology Transfer Subjects," IJERPH, MDPI, vol. 16(9), pages 1-30, May.
    11. Mendi, Pedro & Moner-Colonques, Rafael & Sempere-Monerris, José J., 2020. "Cooperation for innovation and technology licensing: Empirical evidence from Spain," Technological Forecasting and Social Change, Elsevier, vol. 154(C).
    12. Shen, Huijun & Coreynen, Wim & Huang, Can, 2022. "Exclusive licensing of university technology: The effects of university prestige, technology transfer offices, and academy-industry collaboration," Research Policy, Elsevier, vol. 51(1).
    13. Xiaohua Li & Daozhou Yang & Wu Zhao, 2021. "Scholars’ Identity Transition and Its Impact on Spin-Offs’ R&D Input," Sustainability, MDPI, vol. 13(4), pages 1-14, February.
    14. Maria Isabella Leone & Raffaele Oriani & Toke Reichstein, 2015. "How much are flexibility and uncertainty worth in patent licensing?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(4), pages 371-394, December.
    15. Thang V. Nguyen & Lan T. Nguyen & Hieu H. Nguyen, 2018. "Fostering Academic Entrepreneurship: A Qualitative Study Of Invention Commercialization In Vietnam," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 23(04), pages 1-23, December.
    16. 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.
    17. Nicolas Carayol & Valerio Sterzi, 2021. "The transfer and value of academic inventions when the TTO is one option," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 338-367, May.
    18. Francesco Lissoni, 2013. "Intellectual property and university–industry technology transfer," Chapters, in: Faïz Gallouj & Luis Rubalcaba & Paul Windrum (ed.), Public–Private Innovation Networks in Services, chapter 7, pages 164-194, Edward Elgar Publishing.
    19. Catherine Bobtcheff & Carole Haritchabalet, 2018. "Economic Modeling and Valorization of Biobanks," Working Papers hal-02141057, HAL.
    20. Yu, Xinning & Lan, Yanfei & Zhao, Ruiqing, 2018. "Cooperation royalty contract design in research and development alliances: Help vs. knowledge-sharing," European Journal of Operational Research, Elsevier, vol. 268(2), pages 740-754.
    21. Halilem, Norrin & Amara, Nabil & Olmos-Peñuela, Julia & Mohiuddin, Muhammad, 2017. "“To Own, or not to Own?” A multilevel analysis of intellectual property right policies' on academic entrepreneurship," Research Policy, Elsevier, vol. 46(8), pages 1479-1489.
    22. Duong Cong Doanh & Tomasz Bernat & Nguyen Thanh Hieu & Nguyen Bich Ngoc & Nguyen Thi Phuong Linh, 2021. "Academic Entrepreneurship: An Empirical Research of Invention Commercialisation," Central European Business Review, Prague University of Economics and Business, vol. 2021(4), pages 33-62.
    23. Deepak Hegde, 2014. "Tacit Knowledge and the Structure of License Contracts: Evidence from the Biomedical Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 568-600, September.
    24. Meschnig, Annika & Dubiel, Anna, 2023. "From formation to performance outcomes: A review and agenda for licensing research," Journal of Business Research, Elsevier, vol. 167(C).

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    More about this item

    Keywords

    University licensing Milestone payments Consulting Bayh-Dole act;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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