Working Paper: CEPR ID: DP6207
Authors: Patrick W. Schmitz
Abstract: An upstream firm can license its innovation to downstream firms that have to exert further development effort. There are situations in which more licenses are sold if effort is a hidden action. Moral hazard may thus increase the probability that the product will be developed.
Keywords: innovation; licences; monopoly; private information
JEL Codes: D45; D82; L12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| moral hazard (G52) | number of licenses sold (D45) |
| moral hazard (G52) | probability of product development (O36) |
| unobservable effort (D29) | multiple licenses sold (D45) |
| unobservable effort (D29) | product development (O39) |
| moral hazard (G52) | upstream monopolist's decision to sell licenses (D45) |