Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5078727 | International Journal of Industrial Organization | 2009 | 12 Pages |
Abstract
In this paper, we develop a theoretical model of university licensing to explain why university license contracts often include payment types that differ from the fixed fees and royalties typically examined by economists. Our findings suggest that milestone payments and annual payments are common because moral hazard, risk sharing, and adverse selection all play a role when embryonic inventions are licensed. Milestones address inventor moral hazard without the inefficiency inherent in royalties. The potential for a licensee to shelve inventions is an adverse selection problem which can be addressed by annual fees if shelving is unintentional, but may require an upfront fee if the firm licenses an invention with the intention to shelve it. Whether the licensing contract prevents shelving depends in part on the university credibly threatening to take the license back from a shelving firm. This supports the rationale for Bayh-Dole march-in rights but also shows the need for the exercise of these rights can be obviated by contracts.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Emmanuel Dechenaux, Marie Thursby, Jerry Thursby,