TY  - JOUR
AU  - Dechenaux,Emmanuel
AU  - Thursby,Jerry
AU  - Thursby,Marie C.
TI  - Inventor Moral Hazard in University Licensing: The Role of Contracts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14226
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14226
L1  - http://www.nber.org/papers/w14226.pdf
N1  - Author contact info:
Emmanuel Dechenaux
Kent State University
Department of Economics
Kent, OH 44242-0001
E-Mail: edechena@kent.edu

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

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
AB  - 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.
ER  -