TY  - JOUR
AU  - Thursby,Marie
AU  - Thursby,Jerry
AU  - Dechenaux,Emmanuel
TI  - Shirking, Sharing Risk, and Shelving: The Role of University License Contracts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11128
PY  - 2005
Y2  - February 2005
UR  - http://www.nber.org/papers/w11128
L1  - http://www.nber.org/papers/w11128.pdf
N1  - Author contact info:
Marie C. Thursby
College of Management
Georgia Institute of Technology
800 West Peachtree Street, NW
Atlanta, GA 30308-1149
Tel: 404/894-6249
Fax: 404/385-4894
E-Mail: marie.thursby@mgt.gatech.edu

Jerry Thursby
Georgia Institute of Technology
E-Mail: jerry.thursby@mgt.gatech.edu

Emmanuel Dechenaux
Kent State University
Department of Economics
Kent, OH 44242-0001
E-Mail: edechena@kent.edu
AB  - 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.
ER  -