Contribution-proportional remuneration rule for employee inventions and its effects on effort and investment incentives

Yoshihito Yasaki and Akira Goto

Economics of Innovation and New Technology, 2006, vol. 15, issue 7, 665-678

Abstract: The practice of the Japanese court in case of a dispute between the employer and employee regarding the amount of remuneration for an employee invention has been to order that the additional profit from the invention be divided proportionally to their respective input contributions. We show that, if the employer's investment and employee's effort are weakly complementary, this rule causes the share effect (excessive incentives on the part of each party to expend investment or effort in order to increase his/her share of the surplus) to dominate the probability effect (insufficient incentives arising from the fact that each party obtains only part of the increase in the expected surplus), and thus leads to excessive investment and effort relative to the joint-payoff-maximising levels. If the court cannot capture the employer's investment as fully as the employee's effort, the employer's investment may be too low compared to the joint-payoff-maximising level.

Keywords: Employee inventions; Remuneration; Contribution-proportional rule; Effort and investment incentives (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1080/10438590500418976

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