IDEAS home Printed from https://ideas.repec.org/p/zbw/csledp/200208.html
   My bibliography  Save this paper

Efficient Compensation for Employees' Inventions: An Economic Analysis of a Legal Reform in Germany

Author

Listed:
  • Will, Birgit E.
  • Kirstein, Roland

Abstract

The German law on employees' inventions requires employees to report to their employer any invention made in relation with the work contract. An employer claiming the right to the invention is obliged to pay a compensation to the employee. Up to now, this compensation is a matter of negotiations. A reform proposal seeks to introduce a combination of a fixed payment and a share of the project value. Regulations like this can also be found at U.S. universities. Up to now, German scholars enjoyed the privilege of not having to report their inventions to their universities. The new German law concerning inventions made by university scholars has abolished this privilege. Universities now have the right to claim the invention in exchange for a mandatory 30-percent share of the project value. Our model draws on Principal-Agent theory and combines elements of moral hazard and hold-up. We derive a unique efficient payment scheme that consists only of a lump-sum payment. We show that freedom to negotiate over the compensation after the invention has been done provides inefficient incentives. Efficient incentives would require the compensation to be fixed ex-ante, as it is provided by both the proposed law (concerning employees in general) and the new law (concerning university scholars). However, both set the payment schemes in an inefficient way. With suboptimal incentives to spend effort into inventions, the government's goal, an increase in the number of patents, is likely to be missed.

Suggested Citation

  • Will, Birgit E. & Kirstein, Roland, 2002. "Efficient Compensation for Employees' Inventions: An Economic Analysis of a Legal Reform in Germany," CSLE Discussion Paper Series 2002-08, Saarland University, CSLE - Center for the Study of Law and Economics.
  • Handle: RePEc:zbw:csledp:200208
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/23122/1/2002-08_erfinder.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Inderst, Roman, 2002. "Contract design and bargaining power," Economics Letters, Elsevier, vol. 74(2), pages 171-176, January.
    2. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 265-290, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Moral hazard; hold-up; efficient fixed wage;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:csledp:200208. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/fosaade.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.