Working Paper: NBER ID: w14226
Authors: Emmanuel Dechenaux; Jerry Thursby; Marie C. Thursby
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.
Keywords: university licensing; moral hazard; contracts; inventor effort; technology transfer
JEL Codes: D82; L14; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| milestone payments (J33) | inventor effort (O31) |
| royalties (O34) | inventor effort (O31) |
| milestones are preferable (C41) | inventor cooperation (O36) |
| consulting contracts (M55) | monitoring of inventor effort (O31) |
| monitoring of inventor effort (O31) | firm's profits (L21) |
| milestones (Y60) | addressing moral hazard (G52) |
| royalties (O34) | moral hazard (G52) |
| consulting contracts (M55) | need for inventor cooperation (O36) |