Optimal Licensing Contracts and the Value of a Patent

Can Erutku and Yves Richelle

Journal of Economics & Management Strategy, 2007, vol. 16, issue 2, 407-436

Abstract: We extend Kamien and Tauman's (1986) analysis of the value of a patent. We find that an inventor can always design a fixed fee plus royalty contract such that his revenue is equal to the profit a monopoly endowed with the innovation could make on the market. This implies that the social value of a patent can be strictly negative whenever the patented innovation is of bad quality. We also explain why a principal can have an interest in using performance‐based contracts although the principal and the agents are risk‐neutral, information is symmetric, and agents' actions are verifiable.

Date: 2007
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https://doi.org/10.1111/j.1530-9134.2007.00144.x

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