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Efficient Compensation for Employees’ Inventions

  • Roland Kirstein

    (University of Saarland)

  • Birgit Will

    (University of Saarland)

We analyze the legal reform concerning employees' inventions in Germany. Using a simple principal-agent model, we derive a unique efficient payment scheme: a bonus which is contingent on the project value. We demonstrate that the old German law creates inefficient incentives. However, the new law concerning university employees and the pending reform proposal concerning other employees also fail to implement first-best incentives. With suboptimal incentives to spend effort on inventions, the government's goal, an increase in the number of patents, is likely to be missed.

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Paper provided by Berkeley Electronic Press in its series German Working Papers in Law and Economics with number 2004-1-1080.

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Handle: RePEc:bep:dewple:2004-1-1080
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  13. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
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